2. Sales (100,000 units) $1,000,000

Variable costs 300,000

Contribution margin 700,000

Fixed manufacturing costs 200,000

Operating income 500,000

Interest 75,000

Earnings before taxes 425,000

Taxes (30%) 127,500

Net Income $297,500

What is the degree of combined leverage?

4.You will deposit $2,000 today. It will grow for five years at 12% interest, but compound semi-annually. You will then draw the funds annually

over the next four years at the end of each year, with an annual interest rate of 8%. Approximately what will your annual withdraw be?

6.An issue of common stock has just paid a dividend of $2.00. Its growth rate is equal to 4%. If the required rate of return is 7%, what is the

current price?

8.A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost

of $335,000 and the following cash flows: Year 1: $140,000; Year 2: $150,000; and Year 3: $100,000. Project B has a cost of $365,000 and

the following cash flows: Year 1: $220,000; Year 2: $110,000; and year 3: $150,000. Using a 6% cost of capital, what is the net present value

of Project A?