# Financial concepts

1 Joe runs a little parts shop. His hourly labor price to customers is $40 per hour and his hourly material price works out to about 25% of the hourly labor price. His hourly labor cost is about 50% of his hourly labor price, and his material cost and material price are such that he makes 25% on materials. What is his firm's contribution per hour?

2 Given EBIT = $2M, Interest cost = $800,000, tax rate = .4, number of shares = 1,000,000, and Price = $20, what is the firm's Return on Equity?

3 If the # of shares for an all equity firm = 200,000, the number of shares if the firm is half debt and half equity is 100,000, and the interest cost for the firm if it is half debt and half equity is $1,000,000, then what is the firm's breakeven EBIT? Assume that there are no taxes.

4 Firm A is 100% equity financed but is thinking of issuing debt and using the proceeds to retire 40% of its debt. Firm A's breakeven EBIT for these two capital structures is $4,000,000. If the firm's EBIT is definitely going to be $5,000,000, then Firm A's EPS will be:

5. BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend yield on BDJ Inc. 's stock?

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#### Solution Preview

1 Joe runs a little parts shop. His hourly labor price to customers is $40 per hour and his hourly material

price works out to about 25% of the hourly labor price. His hourly labor cost is about 50% of his hourly

labor price, and his material cost and material price are such that he makes 25% on materials.

What is his firm's contribution per hour?

in$

Sales Price 40

Labour Cost 20

Material Cost 7.5 Labor Price*.25*.75

Contribution per hour 12.5

2 Given EBIT = $2M, Interest cost = ...

#### Solution Summary

This solution provides step by step explanations of how to calculate various financial parameters, including EBIT, EPS and Dividend Yield.