Data Concerning Hinkson Corporation's Single Product Appear Below: Fixed

question 51

Multiple Choice

Data concerning Hinkson Corporation's single product appear below: Fixed expenses are $720, 000 per month.The company is currently selling 8, 000 units per month.The marketing manager would like to introduce sales commissions as an incentive for the sales staff.The marketing manager has proposed a commission of $9 per unit.In exchange, the sales staff would accept a decrease in their salaries of $60, 000 per month.(This is the company's savings for the entire sales staff. ) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units.What should be the overall effect on the company's monthly net operating income of this change?

• A)increase of $59, 100
• B)decrease of $121, 700
• C)increase of $894, 300
• D)decrease of $1, 700

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Definitions:

Constant Growth Stocks

Stocks of companies expected to grow at a steady, predictable rate, often used in the Gordon Growth Model for valuation.

Required Rate

The minimum annual percentage return on an investment that an investor aims for, considering the investment's risk.

Retaining Earnings

Profits that a company reinvests in itself instead of paying out to shareholders as dividends.

Flotation Costs

Those costs occurring when a company issues a new security, including fees to an investment banker and legal fees.