Exam (elaborations)
FIN3701 ASSIGNMENT 2 SEMESTER 1 2023
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- University Of South Africa
FIN3701 ASSIGNMENT 2 SEMESTER 1 2023
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FIN3702ASSIGNMENT 2
SEMESTER 1
2023
WITH ANSWERS 100% CORRECT
, FIN3701 Assignment 2 Semester 1 2023 (678669)
QUESTION 1
Use the information provided below to answer questions 1.1 and 1.2. A
company is evaluating three operating and financial structures. The company
is in a 30% tax bracket and the Chief Financial Officer (CFO) compiled the
following information: Operating structure A B C Units sold 5 000 10 000 20
000 Fixed costs (R) 45 000 30 000 90 000 Selling price (R) 25.00 17.50 29.00
Variable costs (R) 13.90 10.00 12.00 Expected EPS 0.60 0.18 0.36 Standard
deviation of EPS 0.760 1.138 1.560 WACC 11% 11% 11% REQUIRED
1.1 Calculate the operating break-even point for structures A, B and C.
The operating break-even point refers to the number of units that must be sold to
cover all fixed and variable costs and generate zero profit. It can be calculated
using the following formula:
Operating Break-Even Point = Fixed Costs / (Selling Price - Variable Costs)
Using the information provided, we can calculate the operating break-even point
for each structure as follows:
For Structure A:
Operating Break-Even Point = 45,000 / (25.00 - 13.90) = 3,750 units
For Structure B:
Operating Break-Even Point = 30,000 / (17.50 - 10.00) = 3,750 units
For Structure C:
Operating Break-Even Point = 90,000 / (29.00 - 12.00) = 5,000 units
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