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QUESTIONS :
1. AudioFile would like to know its EBDAT breakeven level. The company has only one product, the Voce9000 speaker, a high-end speaker that downloads media player files into its own memory. The firm’s speakers sell for $10,000 each. Each speaker costs $6,500 in materials and manufacturing costs (all production is outsourced to an external manufacturer). The firm’s headquarters facility lease is $350,000 annually, its marketing expense is $100,000 per year, and salary costs are $550,000 annually.
Part 1: Calculate the firm’s a) EBDAT revenue, and b) contribution profit margin at EBDAT breakeven. Part 2: If the firm sells 400 speakers, what will be its c) gross profit percentage, d) operating income, and e) operating income percentage be?
2. H2Oh! has patented a brilliant technology that transforms dry air into drinkable water. In 2012, the company has $8 million in revenue, and $1.2 million in net income. H2Oh! began the year with $5 million in book equity on January 1. Complete the following: a) Forecast the firm’s 2017 sales, assuming a 40% sales growth rate per year starting in 2013. b) Assuming the company pays out no dividends in 2012, what is the firm’s maximum sustainable growth rate? c) Compare H2Oh!’s sales growth rate with the firm’s maximum sustainable growth rate (which you just calculated in (b). Will the firm be able to support its growth through internally generated funds? If so, discuss the financial reasons why this is so using the textbook’s concept of maximum sustainable growth rate. If you believe the firm will not be able to support its growth, explain why and discuss what action management must take. d) Part 1: If the firm pays out $400,000 in dividends, what is the firm’s retention rate? Part 2: Assuming the firm pays out $400,000 in 2012 dividends, what is H2Oh!’s sustainable growth rate? e) After $400,000 in 2012 dividends have been paid on December 31, what will be H2Oh!’s new book equity balance? f) Use your final answer for (e) to answer the following: assume that the H2Oh!’s balance sheet shows that the firm has assets with a book value of $7 million. How much debt does the firm have?
