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MGT201 Fall 2006 Assignment 08 Solution
MGT201 Fall 2006 Assignment 08 Solution
FINANCIAL MANAGEMENT
MGT 201-Semester Fall 2006
Marks Obtained:
Max Marks: 10
6.
a.
b.
c.
d.
7. Texas Products Inc. has a division that makes plastic composite bags for the
space industry. The division has fixed costs of $45,000 per month, and it expects
to sell 45,000 bags per month. If the variable cost per bag is $6.00, what price
must the division charge in order to break even?
a. $6.00
b. $7.00
c. $8.00
d. $9.00
8. 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 firms 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
9. Suppose you know that your firm is facing relatively poor prospects but needs
new capital. If you also know that investors do not have this information,
signaling theory would predict that you would:
a. Issue debt to maintain the returns of equity holders.
b. Issue equity to share the burden of decreased equity returns between old and
new shareholders.
c. Both a and b are correct
d. None of the given option is correct
10. The extent to which fixed costs are used in a firms operations is called its:
a. Financial leverage.
b. Operating leverage.
c. Financial leverage.
d. Foreign risk exposure.
THE END