1. A corporation sold X units of product for $Y each and has $M in total fixed a

Question

1. A corporation sold X units of product for $Y each and has $M in total fixed and $L in total variable costs (a) Find its break-even point (in units) in terms of L, M, X and Y. (b) Use any part of or all of your answer to part (a) to find profit earned at a sales volume of T units above break-even

2. Calculate how much working capital a corporation with a current ratio of 4 and $50 million in short-term debt has.

3. Given an annual lease payment of $438,020, find the rate of return earned by a lessor on a 3 year, $1 million (present value) capital lease.

4. What do IRR, NPV, and Payback all have in common?

Explanation / Answer

Question 1:

Part A

Breakeven point = fixed cost / (price – variable cost per unit)

                                             =M/ (Y –L/X)

Part B

Sales = T x Y = TY

Profit = Sales – cost

           = TY – Tx L/X   - M

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