Question

1. Hartman Motors has $18 million in assets, which were financed with $10.8 million of debt and $7.2 million in equity. Hartman's beta is currently 1.85, and its tax rate is 35%. Use the Hamada equation to find Hartman's unlevered beta, bU. Do not round intermediate calculations. Round your answer to two decimal places.2. The Warren Watch Company sells watches for $26, fixed costs are $110,000, and variable costs are $12 per watch.What is the firm's gain or loss at sales of 7,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.$What is the firm's gain or loss at sales of 17,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.$What is the break-even point (unit sales)? Round your answer to the nearest whole number.units

Answer 1

1) Unlevered Beta = 0.94

2) Firm makes loss of -$12,000 when makes 7,000 watches.

3) Firms makes profit of $128,000 when it makes 17,000 watches.

4) The firm needs to make 7858 watches for break even point.

Step-by-step explanation:

1) The formula for finding un levered beta is =Levered Beta/1+(1-t)*Debt/Equity

Levered Beta = 1.85

T= 0.35

Debt= 10.8

Equity= 7.2

Debt/Equity=1.5

Unlevered Beta = 1.85/1+(0.65*1.5)

Unlevered Beta = 0.936

2) Watch price = $26

Fixed costs 110,000, variable cost 12 per watch.

If the firm sells 7,000 watches the revenue is (7000*26)=182,000

The cost for making 7000 watches is 110,000+ (7000*12)=194,000

Profit/Loss= 182,000-194,000= -12,000

Firm makes loss of $12,000 when makes it 7,000 watches.

3) When it makes 17,000 watches

Revenue = 17000*26= 442,000

Cost = 110,000+ (17000*12)=314,000

Profit/Loss= 442,000-314,000=128,000

Firms makes profit of $128,000 when it makes 17,000 watches.

4) Break even formula

If X is the number of watches made than the fixed costs plus variable cost per watch multiplied by x should be equal to revenue which is price multiplied by x so

110,000+12x=26x

110,000=14x= 7858

The firm needs to make 7858 watches for break even point.