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# ch13pp - CHAPTER 13 CAPITAL STRUCTURE AND LEVERAGE...

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Determining price from EBIT Answer: e 1. The Price Co. will produce 55,000 widgets next year. Variable costs will equal 40% of sales, while fixed costs will total \$110,000. At what price must each widget be sold for the company to achieve an EBIT of \$95,000? a. \$2.00 b. \$4.45 c. \$5.00 d. \$5.37 e. \$6.21 Operating decision Answer: d 2. Musgrave Co. has fixed costs of \$46,000 and variable costs are 30% of the sales price of \$2.15. At \$2.15, Musgrave sells 40,000 units. Musgrave can increase sales by 10,000 units by cutting its unit price from \$2.15 to \$1.95, but variable cost per unit will remain at 30% of the sales price. Should it cut its price? Leverage and capital structure 3. Which of the following statements is likely to encourage a firm to increase the amount of debt in its capital structure? Calculating unlevered beta

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ch13pp - CHAPTER 13 CAPITAL STRUCTURE AND LEVERAGE...

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