I need help with 2 and 4 please QUIZ 6: Fall 2017 FIN 326: Intermediate Corporat

Question

I need help with 2 and 4 please

QUIZ 6: Fall 2017 FIN 326: Intermediate Corporate Finance I. The Fishy Company wil 10-gallon aquariums each a costs Rotal SE10.000, At what price must 31, soor-aos 950002PCss.oco)-.a Gspoo)r- llo, 000 2. Usin ng the information from Problem 1, what is the equilibrium break-even The Dimmy Company has identified two methods of producing playing cards. One 3. method involves using a machine having a fixed cost of $22.000 and variable costs of 31.10 per deck. The other method would use a less expensive machine having a fixed 0/ but it would require variable costs o deek. If the selling price cost o per deck will be the same under each method, at what level of output would the two methods produce the same net operating income (EBIT)? and, +2.seq +a2,00ota.soq t aa,oo Using informatioh from problem 3, what must be quantity break-even unit for each method?

Explanation / Answer

2)

For breakeven quantity EBIT should be zero.

EBIT = P*Q - V*Q - FC

0 = P*Q - 0.42*P*Q - 110000

P*Q = 110000 / 0.58 = 189655.17

Q = 189655.17 / 6.43 = 29495.36 = 29495

4)

As price is not given, we cant calculate breakeven point.

If we assume EBIT as zero in part 3 then

Price = 22000/11785.71 + 1.1 = 1.87 + 1.1 = 2.97

Price = 5500/11785.71 + 2.5 = 1.87 + 1.1 = 2.97

For breakeven quantity EBIT should be zero.

EBIT = P*Q - V*Q - FC

Q = FC / (P-V) = 22000 / (2.97-1.1) = 11785.71 (method 1)

Q = FC / (P-V) = 5500 / (2.97-2.5) = 11785.71 (method 2)

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