156 correct answer b mason should invest in all

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156. Correct answer b. Mason should invest in all projects that have an IRR greater than the cost of capital. In this case, that means A + B + C = $200k + $350k + $570k = $1,120,000. This will be financed 40% debt and 60% equity, or $1,120,000 x 60% = $672,000 equity. Since the $1 million is available internally, $1,000,000 – $672,000 = $328,000 will not be need for projects, $328,000 can be paid as dividends under the residual dividend policy. 157. Correct answer d. The liquidity of a company is a prime consideration in dividend decisions because dividends represent a cash outflow. A growing company may be profitable but not liquid or a company may wish a liquidity cushion to provide flexibility.
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297 158. Correct answer b. After a stock-split, a company rarely maintains the same per share dividend but usually reduces to half or slightly about half. Therefore, total dividend payouts remain approximately the same. 159. Correct answer a. The company will pay $12,000 in common stock dividends on the 20,000 shares outstanding (25,000 issued – 5,000 treasury stock) at $.60 per share. 160. Correct answer a. If the U.S. inflation rate declines relative to the Swiss inflation rate, the U.S. dollar will purchase a greater number of Swiss francs resulting in the depreciation of the Swiss franc. 161. Correct answer c. If the U.S. dollar appreciates against the British pound, it will take fewer dollars to purchase British goods thus increasing the demand for these products. 162. Correct answer c. If Country A has more exports than imports, its demand for foreign currency will diminish resulting in the appreciation of A’s currency. 163. Correct answer d. If R’s real interest rates are lower than the real interest rates in T, there will be lower demand for R currency investments resulting in the depreciation of R’s currency relative to T’s currency. Section C: Decision Analysis 164. Correct answer c. Garner could incur up to $270,000 of expense and still break even due to savings of $270,000 as shown below. Interest expense avoided = (3 x $1,500,000) x [(.07 ÷ 12) x 8] = $4,500,000 x .046666 = $210,000 Additional income earned = (3 x $1,500,000) x [(.04 ÷ 12) x 4] = $4,500,000 x .013333 = $60,000 Total savings = $210,000 + $60,000 = $270,000
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298 165. Correct answer c. Bolger’s breakeven point would increase by 375 units as shown below. Current breakeven point: ($300 - $210)X = $360,000 $90 X = $360,000 X = 4,000 units Future breakeven point: ($300 - $220)X = $350,000 $80X = $350,000 X = 4,375 units Difference 4,375 – 4,000 = 375 units 166. Correct answer b. Phillips breakeven volume is 82,500 units, and the company’s anticipated operating income is $9,250,000 as calculated below. Breakeven point: ($160 - $60) X = ($55 x 150,000) $100X = $8,250,000 X = 82,500 units Operating income = [($160 - $60) x 175,000] - $8,250,000 = $9,250,000 167. Correct answer c. Cost-volume-profit analysis assumes that variable costs do not change with a change in volume; therefore, option C is the correct response. All other assumptions presented are correct. 168. Correct answer b. At the breakeven point, Ace would sell 9,231 units of Product C based on a sales mix of 80% Product C. Breakeven point: 80% C contribution + 20% F contribution = Fixed costs [(.8 x $2) + (.2 x $5)] x A = $30,000 $2.60A = $30,000 A = 22,538.46 Product C breakeven point: 11,538.46 x 80% = 9,231 units 169. Correct answer c. 12 x 3,500 = 42,000 .28 20 x 3,000 = 60,000 .40 12 x 4,000 = 48,000 .32 150,000 .28 x (18-3) = 4.2 .40 x (15-1) = 5.6 .32 x (20-0) = 6.4 16.2 weighted CM Fixed: 165,000 + 249,000 + 316,000 + 565,000 = 1,295,000 / 16.2 = 79,938
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299 170. Correct answer d. In order to achieve a net income of $1.3 million, Carson will need to sell 90,000 units
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