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Capital Structure and Leverage

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Capital Structure and Leverage 26. The Free Indeed Company manufactures ladies shoes that are sold through discount houses. The shoes are sold for $20 each pair; the fixed costs are $110,000 for up to 30,000 pairs of shoes; variable costs are $13 per pair of shoes. What is the firm’s gain or loss at sales of 12,000 pairs of shoes? a. -$26,000 b. $84,000 c. $130,000 d. $240,000 e. $300,000 27. The Free Indeed Company manufactures ladies shoes that are sold through discount houses. The shoes are sold for $20 each pair; the fixed costs are $110,000 for up to 30,000 pairs of shoes; variable costs are $13 per pair of shoes. What is the firm’s gain or loss at sales of 30,000 pairs of shoes? a. $100,000 b. $210,000 c. $490,000 d. $600,000 e. $900,000 28. The Free Indeed Company manufactures ladies shoes that are sold through discount houses. The shoes are sold for $20 each pair; the fixed costs are $110,000 for up to 30,000 pairs of shoes; variable costs are $13 per pair of shoes. What is the firm’s breakeven point in units sold? a. 30,000 pairs of shoes b. 15,714 pairs of shoes c. 8,462 pairs of shoes d. 5,500 pairs of shoes 29. The HLHL has $20 million in assets, earned $8 million before interest and taxes last year, and has a 40 percent federal-plus-state tax rate. The firm’s debt ratio (D/TA) is 30 percent and it pays 12 percent interest on its debt. What is the firm’s rate of return on equity (net income/equity)? a. 31.2% b. 34.3% c. 52.0% d. 72.8% 30. Wiggins Motors has $50 million in assets that are financed entirely with equity. The firm’s beta is currently 1.2. The CFO is suggesting that the firm recapitalize and use debt to finance 40% of its assets. Currently, the risk-free rate is 4%, and the market return is estimated to be 10%. The firm’s tax rate is 40%. What would be the firm’s estimated cost of equity if they recapitalize the firm? a. 11.2%. b. 14.08% c. 16.93% d. 19.32% Business Assignment Help, Business Homework help, Business Study Help, Business Course Help

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