# Breakeven Point Assignment | Homework For You

1. Linus Industries has the following profile as it introduces its latest smoothie blender. The new blender will produce incremental Earnings Before Interest and Taxes (EBIT) of \$900,000.
Linus Industries has a 34% marginal tax rate and the project will produce \$300,000 of depreciation per year. Additionally, in Year 1 the project will also cause the following changes:

Accounts Receivable will increase by \$10,000

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Inventory will increase by \$15,000

Accounts Payable will increase by \$14,000

1. What is the change in EBIT?                                        ___________________________________
1. What is the change in Taxes?                                     ___________________________________
1. What is the change in Depreciation?                      ___________________________________
1. What is the change in Working Capital?                 ___________________________________
1. What is the 1st Year Free Cash Flow?*                    ___________________________________

N.B. Assume no change in Capital Expenditures

1. Peanuts Industries is starting a new project to develop tiger logo pink slippers for the Clemson football team. This project will generate revenues of \$300,000 annually. Annual cash expenses including Fixed and Variable Costs equal \$190,000 — in addition to the cash expenditures depreciation will be \$20,000. The marginal tax rate is 40%. Calculate the operating cash flow for Peanuts Industries.
1. \$54,000
2. \$64,000
3. \$74,000
4. \$84,000
1. Lucy Inc. has a bond with a \$1,000 face value, and a coupon rate of 10%. A new issue would have a flotation cost of 5% of the \$1,125 market value. The bond will mature in 40 years. Lucy’s marginal tax rate is 34%. What is the approximate after tax cost of this capital?
1.    6.1%
2.    7.1%
3.    8.1%
4.    9.1%
1. The common stock of Lucy Inc. sells for \$27.50 per share. If a new issue was to be sold the flotation costs would be 5%. Last year’s dividend was \$1.80 and the anticipated growth for Lucy Inc. is 7%. What is the approximate cost of this anticipated new common stock?

1.    7.4%
2. 14.4%
3. 18.4%
4. 21.4%
1. Lucy Inc. issued new preferred stock paying a 9% dividend on a \$300.00 par value. The flotation costs will be 12% of the current price of \$1700. What is the cost of this capital?
1. 12.5%
2. 14.5%
3. 17.5%
4. 19.5%
1. The amount of capital held by Lucy Inc. is: Bonds \$6,000,000, Common Stock-new of \$9,600,000 and Preferred Stock of \$8,400,000. Using the answers to Questions 10, 11, and 12 above what is the approximate weighted average cost of capital for Lucy Inc.?
1.    10.4%
2.    11.4%
3.    12.4%
4.    13.4%
1. Woodstock Inc. is a high fashion designer company located in Paris, France. The company specializes in wedding gowns for the famous. Sales last year were \$40,000,000 with Fixed Costs of \$6,000,000 and EBIT of \$24,000,000. Calculate Woodstock Inc.’s breakeven point in dollars.
1. \$   8 Million
2. \$10 Million
3. \$14 Million
4. \$24 Million. Get Finance homework help today

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