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Ecology Labs Inc

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Question

Ecology Labs Inc. will pay a dividend of $3.75 per share in the next 12 months (D1). The

required rate of return (Ke) is 16 percent and the constant growth rate is 6 percent. (Each question is independent of the others.)   

a. Compute the price of Ecology Labs’ common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Assume Ke, the required rate of return, goes up to 19 percent. What will be the new price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Assume the growth rate (g) goes up to 10 percent. What will be the new price? Ke goes back to its original value of 16 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. Assume D1 is $5.00. What will be the new price? Assume Ke is at its original value of 16 percent and g goes back to its original value of 6 percent. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 
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rate

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Question


2. The Friendly Sausage Factory (FSF) can produce hot dogs at a rate of 5,000 per day. FSF supplies

hot dogs to local restaurants at a steady rate of 250 per day. The cost to prepare the equipment for producing hot dogs is $66. Annual holding costs are 45 cents per hot dog. The factory operates 298 days a year.

a.Find the optimal run size. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

  Optimal run size 

b.Find the number of runs per year. (Round your answer to the nearest whole number.)

  Number of runs 

c.Find the length (in days) of a run. (Round your answer to the nearest whole number.)

  Run length (in days) 

3.  A company manufactures hair dryers. It buys some of the components, but it makes the heating element, which it can produce at the rate of 933 per day. Hair dryers are assembled daily, 251 days a year, at a rate of 350 per day. Because of the disparity between the production and usage rates, the heating elements are periodically produced in batches of 2,333 units.

a.Approximately how many batches of heating elements are produced annually? (Round your answer to 2 decimal places.)

  Number of batches 

b.If production on a batch begins when there is no inventory of heating elements on hand, how much inventory will be on hand three days later?

  Number of inventory 

c.What is the average inventory of elements, assuming each production cycle begins when there are none on hand? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

  Average inventory 

d.The same equipment that is used to make the heating elements could also be used to make a component for another of the firm’s products. That job would require four days, including setup. Setup time for making a batch of the heating elements is a half day. Is there enough time to do this job between production of batches of heating elements?

   YesNo

 
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share

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Question

A share of stock with a beta of .67 now sells for $42. Investors expect the stock to pay a year-end dividend of

$3. The T-bill rate is 4%, and the market risk premium is 7%. If the stock is perceived to be fairly priced today, what must be investors’ expectation of the price of the stock at the end of the year?

 
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fixed costs

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Question

Modern Artifacts can produce keepsakes that will be sold for $100 each. Nondepreciation fixed costs are $1,200 per

year, and variable costs are $80 per unit. The initial investment of $3,600 will be depreciated straight-line over its useful life of 3 years to a final value of zero, and the discount rate is 12%.

a.What is the degree of operating leverage of Modern Artifacts when sales are $13,500? (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 $21,100? (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? 

  Degree of operating leverage is (Click to select)

higher

lower

 when profits are (Click to select)

higher

lower

 
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