What is the break-even point in bags?

Time Value

• Ali has bought a house; He estimates that the roof will have to be renewed at a cost of €25,000 after 20 years. To cover these costs, she intends to save an equal amount of money at the end of each year, earning a 6% annual interest rate. How much is such a yearly annuity?
• An investor deposited $10,000 in a savings account paying 5% converted quarterly. At the end of 5 years what is the value of the account?
• Find the value of $1,000 invested at 8% for 10 years?
• Find the present value of $5,000 due in 4 years if money is worth 4% compounded semi-annually?
• What is the value of an annuity of $100 paid monthly for 6 years if money is worth 6% compounded monthly?

leverage

United Snack Company sells 50-pound bags of peanuts to university dormitories for $5 a bag. The fixed costs of this operation are $60,000, while the variable costs of peanuts are $.5 per pound.

1. What is the break-even point in bags?
2. Calculate the profit or loss on 18,000 bags?
3. What is the degree of operating leverage at 20,000 bags?
4. If United Snack Company has an annual interest expense of $10,000, and EBIT $80.000, calculate the degree of financial leverage at 18,000?
5. What is the degree of combined leverage at both sales levels?

Valuation

Q1:   The Lone Star Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is:

1. 5 percent.
2. 10 percent.
3. 12 percent.

Q2:   Bonds issued by the Coleman Manufacturing Company have a par value of $1,000, which, of course, is also the amount of principal to be paid at maturity. The bonds are currently selling for $840. They have 15 years remaining to maturity. The annual interest payment is 8 percent ($80).

• Compute the approximate yield to maturity

Q3:    A firm pays a $2 dividend at the end of year one (D1), has a stock price of $80 (P0), and a constant growth rate (g) of 7 percent.

• Compute the required rate of return (Ke).