Corporate Finance MCQ - Corporate Finance Section 2

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

-Sales price per unit: Rs.2000 each
-Variable cost per unit: Rs.1200 and Rs.1000
-Fixed operating cost: Rs.40 million and Rs.75 million
-Fixed financing expense: Rs.30 million each

Based on this information, the breakeven points for Habitt and Machinesque are closest to:

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.

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

The breakeven quantity is closest to:

QBE = (F + C) / (P - V) = (200 billion) / (0.12 - 0.053)million = 2.99 million.

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:

QOBE = (Fixed cost) / (Contribution margin) = F / (P - V) = 15,000 / 15 = 1,000

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:

The operating breakeven point is: QOBE = (Fixed costs) / (Contribution margin) = $48,000 / $24 = 2,000.

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:

QOBE = (Fixed costs) / (Contribution margin) = 200,000 / 20 = 10,000