**P4–2_Future value calculation_P4–3_Future value_P12–4_Breakeven analysis_P12–19_EBIT–EPS and capital structure_Answer**

**P4–2_Future value calculation_P4–3_Future value_P12–4_Breakeven analysis_P12–19_EBIT–EPS and capital structure_Answer**

**P4–2_Future value calculation_P4–3_Future value_P12–4_Breakeven analysis_P12–19_EBIT–EPS and capital structure_Answer**

P4–2

Future value calculation Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for future value along with the given interest rate, i, and the number of periods, n, to calculate the future value interest factor in each of the cases shown in the following table. Compare the calculated value to the value in Appendix Table A–1.

Future value tables Use the future value interest factors in Appendix Table A–1 in each of the cases shown in the table on the facing page to estimate, to the nearest year, how long it would take an initial deposit, assuming no withdrawals,

a. To double.

b. To quadruple.

P12–4

Breakeven analysis Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating costs are $73,500.

a. Find the operating breakeven point in number of CDs.

b. Calculate the total operating costs at the breakeven volume found in part a.

c. If Barry estimates that at a minimum he can sell 2,000 CDs per month, should he go into the music business?

d. How much EBIT will Barry realize if he sells the minimum 2,000 CDs per month noted in part c?

P12–19

EBIT–EPS and capital structure Data-Check is considering two capital structures.

The key information is shown in the following table. Assume a 40% tax rate.

a. Calculate two EBIT–EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.

b. Plot the two capital structures on a set of EBIT–EPS axes.

c. Indicate over what EBIT range, if any, each structure is preferred.

d. Discuss the leverage and risk aspects of each structure.

e. If the firm is fairly certain that its EBIT will exceed $75,000, which structure would you recommend? Why?

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