# Future value interest factor calculations, break even analys

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P4-2

Future value calculation

Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, i, and the number of periods, n, to calculate the future value interest factor in each of the cases shown in the following table. Compare the calculated value to the value in Appendix Table A-1 .

Case Interest rate, i Number of periods, n

A 12% 2

B 6 3

C 9 2

D 3 4

P12-4 Breakeven analysis Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating costs are $73,500.1. Find the operating breakeven point in number of CDs.2. Calculate the total operating costs at the breakeven volume found in part a.3. If Barry estimates that at a minimum he can sell 2,000 CDs per month, should he go into the music business?4. How much EBIT will Barry realize if he sells the minimum 2,000 CDs per month noted in part c?P12-21 Integrative?Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $10,000,000, EBIT of $2,000,000, and preferred dividends of $200,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment:Capital structure debt ratio Cost of debt, kd No. of common stock shares Required return, ks

0% 0% 200,000 12%

15 8 170,000 13

30 9 140,000 14

45 12 110,000 16

60 15 80,000 20

1. Calculate earnings per share for each level of indebtedness.2. Use Equation 12.12 (See below) and the earnings per share calculated in part a to calculate a price per share for each level of indebtedness.3. Choose the optimal capital structure. Justify your choice.

P12-12 DFL and graphical display of financing plans Wells and Associates has EBIT of $67,500. Interest costs are $22,500, and the firm has 15,000 shares of common stock outstanding. Assume a 40% tax rate.1. Use the degree of financial leverage (DFL) formula to calculate the DFL for the firm.2. Using a set of EBIT-EPS axes, plot Wells and Associates' financing plan.3. If the firm also has 1,000 shares of preferred stock paying a $6.00 annual dividend per share, what is the DFL?4. Plot the financing plan, including the 1,000 shares of $6.00 preferred stock, on the axes used in part b.5. Briefly discuss the graph of the two financing plans.

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P4-2

Future value calculation

Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, i, and the number of periods, n, to calculate the future value interest factor in each of the cases shown in the following table. Compare the calculated value to the value in Appendix Table A-1 .

Case Interest rate, i Number of periods, n

A 12% 2

B 6 3

C 9 2

D 3 4

FVIF= (1+r)^n-

A: =(1+12%)^2= 1.2544

B: =(1+6%)^3=1.191016

C: = (1+9%)^2 =1.1881

D =(1+3%)^4 =1.12550881

P12-4 Breakeven analysis Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating costs are $73,500.1. Find the operating breakeven point in number of CDs.Operating breakeven point = Fixed cost / (Selling Price - variable cost)=73500/(13.98-10.48)=21000 units2. Calculate the total operating costs at the ...

#### Solution Summary

This post solves three problems on future value interest factor calculations, breakeven analyiss and