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1. A company has operating profits of $15,000 on unit sales of 10,000 units. Fixed costs are $30,000. What is the firm's break-even sales level?
a) less than 6,000 units.
b) 6,000 units.
c) more than 6,000 units
d) There is not enough information to determine the unit break-even point.

2) Crenshaw Inc., expects to generate an annual EBIT of $750,000 and needs to obtain financing for $1,200,000 of assets. Their tax bracket is 40%. If the firm goes with a short-term financing plan, their rate will be 7.5 percent, and with a long-term financing plan their rate will be 9 percent. By how much will their earnings after tax change if they choose the more conservative financing plan instead of the more aggressive plan?
a) ($10,800)
b) $6,000
c) ($6,000)
d) $10,000

3) Frederickson Inc. is considering selling to a group of new customers that will bring in credit sales of $24,000 with a return on sales of 5%. The only new investment will be in accounts receivable. Frederickson has a turnover ratio of 6 to 1 between sales and accounts receivable. What is the return on investment?
a) 30%
b) 25%
c) 5%
d) none of these

4) Veritan Inc. expects to receive annual incremental income after taxes of $25,000 which includes an adjustment for un-collectible accounts. What is the maximum commitment to A/R they should be willing to assume if the firm's minimum required after-tax return is 8%?
a) $168,000
b) $312,500
c) $180,000
d) $36,000

 

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