Answer the Following Questions Using the Information Below

question 175

Multiple Choice

Answer the following questions using the information below:
Block Island TV currently sells large televisions for $360. It has costs of $280. A competitor is bringing a new large television to market that will sell for $300. Management believes it must lower the price to $300 to compete in the market for large televisions. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Block Island TV sales are currently 100,000 televisions per year.
-What is the change in operating income if marketing is correct and only the sales price is changed?

• A) $2,200,000
• B) $600,000
• C) $(2,200,000)
• D) $(5,800,000)

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Definitions:

Shares Issued

Refers to the total number of shares that a company has officially distributed to shareholders, including both public investors and corporate insiders.

Liquidation Value

Liquidation value is the estimated amount of money that an asset or business would fetch if it were to be sold or liquidated immediately, often used in bankruptcy proceedings.

Par Value

The nominal or face value of a stock or bond, set at the time of issue, and often used as an accounting value rather than a measure of market value.

Shares Outstanding

The total number of shares of stock that are currently owned by investors, including restricted shares owned by the company’s officers and insiders.