Assume the Price of Your Product Is $10

question 27

Essay

Assume the price of your product is $10.The variable cost per unit is currently $5 and fixed costs are $15 000 per month.Assume that the company can invest in some equipment that will reduce variable costs to $3 each,but the cost of financing the new equipment will increase fixed costs to $17 500 per month.Compare the breakeven points for these two different options.Which is the better choice if the firm believes that it can sell 2800 units of its product per month at the $10 price?

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Definitions:

Repurchase

A company's practice of reacquiring its shares from the market, which may lead to an appreciation in the value of the outstanding shares.

Dividend Clientele Effect

A theory suggesting that investors prefer dividends at rates that match their own tax situation.