P13-5 Breakeven Analysis Paul Scott has a 2008 Cadillac that he wants to update with a go-tracker device s he will

have access to road maps and directions. After-market equipment can be fitted for a flat fee of $500, and the service provider requires monthly charges of $20. In his line of work as a traveling salesman, he estimates that this device can save him time and money about $35 per month (as the price of gas keeps increasing). In order to determine the financial feasibility of purchasing the go-tracker, Paul wants to determine the number of months it will take to break even. He plans to keep the car for another 3 years. a. Calculate the breakeven point for the device in months. b. Based on a, should Paul have the tracker installed in his car? P13-6 Breakeven point-Changing costs/revenues JWG Company publishes Creative Crosswords. Last year the book of puzzles sold for $10 with variable operating cost per book of $8 and fixed operating costs of $40,000. How many books must JWG sell this year to achieve the breakeven point for the stated operating costs, given the following different circumstances? a. All figures remain the same as for last year. b. Fixed operating costs increases to $44,000; all other figures remain the same. c. The selling price increases to $10.50; all costs remain the same as for last year. d. Variable operating cost per book increases to $8.50; all other figures remain the same. P13-20 Debt and financial risk Tower Interiors has made the forecast of sales shown in the following table. Also given is the probability of each level of sales. The firm has fixed operating costs of $75,000 and variable operating costs equal to 70% of the sales level. The company pays $12,000 in interests per period. The tax rate is 40%. a. Compute the earnings before interest and taxes (EBIT) for each level of sales. b. Compute the earnings per share (EPS) for each level of sales, the expected EPS, the standard deviation of EPS, and the coefficient of variation of EPS, assuming that there are 10,000 shares of common stock outstanding. c. Tower has the opportunity to reduce its leverage to zero and pay no interest. This will require that the number of shares outstanding be increased to 15,000. Repeat part b under these assumptions. d. Compute your findings in parts b and c, and comment on the effect of the reduction of debt to zero on the firms financial risk.

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