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Present value, DOL, DFL, unit breakeven, contribution margin

33. Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina's plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1.
a. $1,497
b. $5,281
c. $75
d. $3,622

34. What is the present value of $150 received at the beginning of each year for 16 years? The first payment is received today. Use a discount rate of 9%, and round your answer to the nearest $10.
a. $1,360
b. $1,480
c. $1,250
d. $1,210

Table 3 (use for Problems 35-38)
Average selling price per unit $16.00
Variable cost per unit $11.00
Units sold 200,000
Fixed costs $800,000
Interest expense $ 50,000

35. Based on the data in Table 3, what is the break-even point in units produced and sold?
a. 130,000
b. 140,000
c. 150,000
d. 160,000

36. Based on the data contained in Table 3, what is the degree of operating leverage?
a. 1.00 times
b. 2.00 times
c. 3.00 times
d. 4.00 times
e. 5.00 times

37. Based on the data contained in Table 3, what is the contribution margin?
a. $5.00
b. $4.00
c. $3.00
d. $2.00

38. Based on the data contained in Table 3, what is the degree of financial leverage?
a. 3.33 times
b. 2.50 times
c. 1.50 times
d. 1.33 times

Solution Preview

33. Using TI BA II PLUS financial calculator enter the following.
N = 40, FV = 1000000, I/Y = 11.5, then press CPT and then PMT. Therefore, the the amount that she needs to deposit annually is a. $1,497.

34. Using TI BA II PLUS financial calculator enter the following. We will use annuity due calculation.
FV = 150, N = 16, I/Y = 9, PMT = 150, then press CPT and then PV. It should give a present value of $1,247; however, this value is the present value of $150 received at the END of each year for 16 ...

Solution Summary

This solution is comprised of the calculation of the annual payment (deposit), present value at the beginning of the year, break-even point in units, degree of operating leverage (DOL), contribution margin, and degree of financial leverage (DFL).

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