Finance Chapter 7 Sample Problems Answers

Finance Chapter 7 Sample Problems Answers

1. Wilson's Meats has computed its fixed costs to be $.60 for every pound of meat it sells given an average daily sales level of 500 pounds. It charges $3.89 per pound of top-grade ground beef. The variable cost per pound is $2.99. What is the contribution margin per pound of ground beef sold? 
A. $0.30
B. $0.60
C. $0.90
D. $2.99
E. $3.89
Contribution margin = $3.89 - $2.99 = $.90
2. A project has an accounting break-even point of 2,000 units. The fixed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected sales price? 
A. $20.80
B. $21.00
C. $21.20
D. $25.40
E. $25.60
Accounting break-even Q = 2,000 = ($4,200 + $400)   (P - $23.10); P = $25.40
3. The Mini-Max Company has the following cost information on its new prospective project. Calculate the present value break-even point.
Initial investment: $700
Fixed costs are $200 per year
Variable costs: $3 per unit
Depreciation: $140 per year
Price: $8 per unit
Discount rate: 12%
Project life: 3 years
Tax rate: 34% 
A. 68 units per year
B. 75 units per year
C. 84 units per year
D. 114 units per year
E. None of the above
EAC = $700/A.12,3 = $700/2.4018 = $291.45 or
N=3
I/Y=12
PV=700
CPT PMT=291.45

PV BEP = [EAC + FC(1 - Tc) - Dep(Tc)]/(CM(1 - Tc)) = [$291.45 + $200(.66) - $140(.34)]/5(.66) = 113.89 units = 114 units

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