Senate Inc

question 53

Multiple Choice

Senate Inc.is considering two alternative methods for producing playing cards.Method 1 involves using a machine with a fixed cost (mainly depreciation) of $12,000 and variable costs of $1.00 per deck of cards.Method 2 would use a less expensive machine with a fixed cost of only $5,000,but it would require a variable cost of $1.50 per deck.The sales price per deck would be the same under each method.At what unit output level would the two methods provide the same operating income (EBIT) ?

• A)12,600
• B)14,000
• C)15,400
• D)16,940
• E)18,634

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Definitions:

Conversion Ratio

The number of shares a bondholder can receive upon converting their bonds into equity shares.

Call Option

A finance-related contract granting the buyer the privilege, rather than a requirement, to buy an asset at a fixed price within a set period.

Risk-Free Bond

A debt security that is assumed to have no risk of default, typically issued by a government with a stable financial outlook, allowing investors to predict with a high degree of confidence their return on investment.