Musgrave Corporation Has Fixed Operating Costs of $46,000 and Variable

question 62

Multiple Choice

Musgrave Corporation has fixed operating costs of $46,000 and variable costs that are 30% of the current sales price of $2.15.At a price of $2.15,Musgrave sells 40,000 units.Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95,but variable cost per unit won't change.Should it cut its price?

• A) No,EBIT decreases by $6,000.
• B) No,EBIT decreases by $250.
• C) Yes,EBIT increases by $11,500.
• D) Yes,EBIT increases by $8,050.
• E) Yes,EBIT increases by $5,050.

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Definitions:

Net Present Value

Net Present Value is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment.

Pretax Return

The income an investment generates before taxes are taken into account.

Working Capital

Current assets minus current liabilities, representing the liquidity available to a business for day-to-day operations.

Salvage Value

The forecasted residual value of an asset upon completing its lifespan.