A Chemical Company Spent $532,000 to Produce 150,000 Gallons of a Chemical

question 33

Multiple Choice

A chemical company spent $532,000 to produce 150,000 gallons of a chemical that can be sold for $4.80 per gallon.This chemical can be further processed into a weed killer that can be sold for $8.20 per gallon.It will cost $270,000 to process the chemical into the weed killer.Which of the following is true?

• A)To maximize operating income,the company should continue to sell the chemical as is.
• B)If the company decides to process further,it will increase operating income by $428,000.
• C)If the company decides to process further,it will increase operating income by $240,000.
• D)If the company decides to process further,it will decrease operating income by $1,230,000.

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Definitions:

Mezzanine Capital

is a form of financing that is a mix between equity and debt, often taking the form of convertible debt or subordinate debt, used by companies for expansion.

Bridge Capital

Temporary financing used to "bridge" the gap until longer-term funding can be arranged or until an anticipated event occurs, like a business sale.

Development Stage

A phase in a company's lifecycle focusing on developing its products, services, or business model, often requiring significant investment and carrying high risk.

Financial Know-How

The knowledge and skills related to managing finances, including budgeting, investing, and understanding financial markets and instruments.