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Corporate Finance - Corporate Finance Section 2

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56. In order to assess the riskiness of two companies in the same industry, Mr. Habitt collected the following information from the latest financial statements and management discussions for Habitt and Machinesque respectively: Number of units produced and sold: 2.7 million and 3.5 million

  • Option : A
  • Explanation : For Habitt QBE = (F + C) / (P - V) = (Rs.40million + Rs.30million) / (Rs.2000 – Rs.1200) = 0.0875 million For Machinesque: QBE = (F + C) / (P - V) = (Rs.75million + Rs.30million) / (Rs.2000 – Rs.1000) = 0.105 million.
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57. The owner of a TV store is forecasting for the year 2014 and wants to find out the breakeven point of 2013 with the following data to ensure accuracy:

Revenue Rs. 0.12 million per TV set
Variable cost Rs. 0.053 million per TV set
Fixed cost (including interest cost)Rs. 200 billion

  • Option : C
  • Explanation : QBE = (F + C) / (P - V) = (200 billion) / (0.12 - 0.053)million = 2.99 million.
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58. The unit contribution margin for a product is $15. Assuming fixed costs of $15,000, interest costs of $4,000, and a tax rate of 40%, the operating breakeven point (in units) is closest to:

  • Option : B
  • Explanation : QOBE = (Fixed cost) / (Contribution margin) = F / (P - V) = 15,000 / 15 = 1,000
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59. The per unit contribution margin for a product is $24. Assuming fixed costs of $48,000, interest costs of $5,000, and taxes of $3,000, the operating breakeven point (in units) is closest to:

  • Option : B
  • Explanation : The operating breakeven point is: QOBE = (Fixed costs) / (Contribution margin) = $48,000 / $24 = 2,000.
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60. The unit contribution margin for a product is $20. Assuming fixed costs of $200,000, interest costs of $25,000, and a tax rate of 35%, the operating breakeven point (in units) is closest to:

  • Option : C
  • Explanation : QOBE = (Fixed costs) / (Contribution margin) = 200,000 / 20 = 10,000
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Corporate Finance Section 2