A company’s fixed operating costs are $430,000, its variable costs are$2.95 per unit, and the product’s sales price is $4.50. What is the company’s break-even point; that is, at what unit sales volume will its income equal its costs?

Torch Industries can issue perpetual preferred stock at a price of $57.00 a share. The stock would pay a constant annual dividend of$6.00 a share. What is the company’s cost of preferred stock, $\mathrm{T}_{\mathrm{P}} ?$

Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:

$$\begin{matrix} \text{Sales revenues} & \text{\$ 15 million}\\ \text{Operating costs (exluding depreciation)} & \text{10.5 million}\\ \text{Depreciation} & \text{3 million}\\ \text{Interest expense} & \text{3 million}\\ \end{matrix}$$

The company has a 40% tax rate, and its WACC is 11%. a. What is the project’s cash flow for the first year (t=1)? b. If this project would cannibalize other projects by $1.5 million of cash flow before taxes per year, how would this change your answer to part a? c. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to part a?

Suppose that 1 Danish krone could be purchased in the foreign exchange market today for $0.15. If the krone appreciated 4% tomorrow against the dollar, how many krones would a dollar buy tomorrow?

Marble Construction estimates that its WACC is 10% if equity comes from retained earnings. However, if the company issues new stock to raise new equity, it estimates that its WACC will rise to 10.8%. The company believes that it will exhaust its retained earnings at $2,500,000 of capital due to the number of highly profitable projects available to the firm and its limited earnings. The company is considering the following seven investment projects:$ $$ \begin{matrix} \text{Project} & \text{Size} & \text{IRR}\\ \text{A} & \text{\$ 650.000} & \text{14.0\\%}\\ \text{B} & \text{1.050.000} & \text{13.5}\\ \text{C} & \text{1.000.000} & \text{11.2}\\ \text{D} & \text{1.200.000} & \text{11.0}\\ \text{E} & \text{500.000} & \text{10.7}\\ \text{F} & \text{650.000} & \text{10.3}\\ \text{G} & \text{700.000} & \text{10.2}\\ \end{matrix} $$ $ Assume that each of these projects is independent and that each is just as risky as the firm’s existing assets. Which set of projects should be accepted, and what is the firm’s optimal capital budget?

Which of the following would likely encourage a firm to increase the debt in its capital structure? a. The corporate tax rate increases. b. The personal tax rate increases. c. Due to market changes, the firm’s assets become less liquid. d. Changes in the bankruptcy code make bankruptcy less costly to the firm. e. The firm’s sales and earnings become more volatile.