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2.5. If a 0.5% decrease in product price as accompanied by a 1% decrease in consumer income, the firm’s total sales will
a. increase b. decrease c. same d. decrease then increase
Question
year, and variable costs are $220 per unit. The initial investment of $12,600 will be depreciated straight-line over its useful life of 6 years to a final value of zero, and the discount rate is 13%.
| a. | What is the degree of operating leverage of Modern Artifacts when sales are $30,800? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Degree of operating leverage |
| b. | What is the degree of operating leverage when sales are $57,120? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Degree of operating leverage |
| c. | Why is operating leverage different at these two levels of sales? |
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Question
will sell five Treasury futures contracts at $164,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 8.30 percent. If they increase to 9.50 percent, assume the value of the contracts will go down by 10 percent. Also if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $100,000. This expense, of course, will be separate from the futures contracts.
| a. | What will be the profit or loss on the futures contract if interest rates go to 9.50 percent by December when the contract is closed out? (Input the amount as a positive value.) |
| (Click to select)ProfitLoss on futures contracts | $ |
| b-1. | After considering the hedging, what is the net cost to the firm of the increased interest expense of $100,000? |
| Net cost | $ |
| b-2. | What percent of this $100,000 cost did the treasurer effectively hedge away? (Input your answer as a percent rounded to 2 decimal places.) |
| Percentage hedged away | % |
| c. | Indicate whether there would be a profit or loss on the futures contracts if interest rates went down. |
| LossProfi |
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