Solutions Guide:   Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as your own.

>#1 A company’s fixed operating costs are $1,000,000, its variable costs are $3.50 per unit, and the product’s sales price is $5.00. What is the company’s breakeven point; that is, at what unit sales volume will its income equal its costs?

QBE =

QBE =

QBE = 666,667 units #2 Jackson Trucking Company is in the process of setting its target capital structure. The CFO believes that the optimal debt ratio is somewhere between 20% and 50%, and her staff has compiled the following projections for EPS and the stock price at various debt levels:Debt Ratio 20% 30% 40% 50%Projected EPS $3.20 $3.45 $3.75 $3.50Projected Stock Price $35.00 $36.50 $36.25 $35.50Assuming that the firm uses only debt and common equity, what is Jackson’s optimal capital structure? At what debt ratio is the company’s WACC minimized?

The optimal capital structure is that capital structure where WACC is minimized and stock price is maximized. Because Jackson’s stock price is maximized at a 30% debt ratio, the firm’s optimal capital structure is 30% debt and 70% equity. This is also the debt level where the firm’s WACC is minimized. #3 Harley Motors has $10 million in assets, which were financed with $3 million in debt and $7 million in equity. Harely's beta is currently 1.4, and its tax rate is 35%. Use the Hamada equation to find Harley's unlevered beta

From the Hamada equation, b = bU[1 + (1 – T)(D/E)], we can calculate bU as bU = b/[1 + (1 – T)(D/E)].

bU = 1.4/[1 + (1 – 0.35)($3,000,000/$7,000,000)]bU = 1.4/[1 + 0.278571]bU = 1.095