# Mid-Term (ESLSCA)_Answers - &bankingsciences 2hours ,,as...

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The Arab Academy for financial & banking sciences Mid-Term exam 2012                         Advanced financial management                                                     2 hours   ـــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ ــــــــــــــــــــــــــــــــــــــــــ Answer      only      three questions from each section, explaining your answers or showing your work, as  appropriate     : Section (A) 10.  Ralph Byrd, Inc. wants to manufacture a new cell phone that can be worn on the wrist.  Information  from doing market research shows that he can sell this phone for \$30 each.  His fixed costs would be  \$135,000 a year and variable costs would amount to \$12 per phone. (1)  What would the contribution margin ratio be? (2)  What sales volume in units would Ralph need to break-even? (3)  What sales volume in units would Ralph need to earn \$200,000 profit? (4)  What would be the margin of safety if he sold 25,000 units? Answer:   (1)  30 – 12 = 18/30 or 60% (2)  Break-even = 135,000/18 = 7,500 units (3)  To earn a profit of \$200,000  (200,000 + 135,000)/ 18 = 18,611 units (4)  Margin of safety = 135,000/.60 = \$225,000 sales to break even         25,000 x \$30 = 750,000 – 225,000 = 525,000 4.  A company with an operating income of \$68,000 and a contribution margin ratio of 54% has a margin

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