During 2006,Thor Lab Supplied Hospitals with a Comprehensive Diagnostic Kit

question 12

Multiple Choice

During 2006,Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120.At a volume of 80,000 kits,Thor had fixed costs of $1,000,000 and a profit before income taxes of $200,000.Due to an adverse legal decision,Thor's 2007 liability insurance increased by $1,200,000 over 2006.Assuming the volume and other costs are unchanged,what should the 2007 price be if Thor is to make the same $200,000 profit before income taxes? (CPA adapted)

• A)$122.50
• B)$135.00
• C)$152.50
• D)$240.00

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Definitions:

Equity Beta

A measure of a stock's volatility relative to the overall market volatility.

Business Risk

The equity risk that comes from the nature of the firm’s operating activities.

Financial Policy

Strategic decisions regarding a company's financial management, including borrowing, spending, and investing.