Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

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Answer 1

Question

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

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Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

Answer 2

Question

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

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Answer 3

Question

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

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Answer 4

Question

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

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Answer 5

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

Answer 6

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

Answer 7

Chapter 16, Problem 7P

a)

Summary Introduction

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

Answer 8

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

Answer 9

b)

Summary Introduction

To discuss: Whether company’s break-even point is increased or decreased with this change.

Answer 10

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

Answer 11

c)

Summary Introduction

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 16 - Prob. 1Q Ch. 16 - Prob. 2Q Ch. 16 - Prob. 3Q Ch. 16 - One type of leverage affects both EBIT and EPS....Ch. 16 - Prob. 5Q Ch. 16 - Prob. 6Q Ch. 16 - Prob. 7Q Ch. 16 - Prob. 8Q Ch. 16 - Prob. 9Q Ch. 16 - Prob. 1P

Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

Solution Summary: The author explains how to determine incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment.

To determine: Incremental profit and project’s expected rate of return for next year and whether it is better for the company to make investment or not.

To discuss: Whether company’s break-even point is increased or decreased with this change.

To discuss: whether new situation exposes the firm to increase or decrease the business risk.

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