Financial Management Questions Question 1 A

Fixed costs are generally stable over a relevant range. For example, say an ice cream production company builds a plant that can create 12,000 gallons of ice cream per day. For the production of 1 to 12,000 gallons per day, the fixed costs are the same. However, if the company wants to produce 14,000 gallons of ice cream per day, they will have to add on to the current facilities or build a new plant, and the fixed costs will increase.

In a manufacturing environment, fixed costs usually include the equipment used in productions, the salaries of the sales, administrative, and support staff, and the land and buildings owned by the company. The variable costs include the materials, the salaries of the production workers, and transportation costs for the products.

In a service environment many employee salaries are fixed because you need a certain size of staff to keep the facilities running. Other salaries are variable depending on the demand for the services at the time. In contrast, supplies are predominantly fixed because the incremental cost of brochures, medicines, or information system services are minimal compared to the initial cost of having these items available in order to serve the customers.

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ree interest rate in comparison to the coupon rate of the bond (or lack thereof). Question 7 An organization would lease an asset rather than buy one if the present value of the lease payments was less than the present value of the purchase price of the asset minus the disposal value and tax benefits of depreciating the asset. Assets are often leased when the company does not need them for the full life of the asset. Also assets that have a high residual value will bring more tax benefits if leased and allow the company to recoup more of its investment before selling the asset. Question 8 Off-Balance-Sheet financing is debt that a company owes but is not recorded on the balance sheet. This enhances the perceived health of the company but deceives financial statement users. Many accounting rules that have been devised in previous years are designed to counter this reporting technique. Question 9 The WACC (weighted average cost of capital) is the amount of return required on the company's debt plus the amount of return required by the company's equity divided by the sum of the market values of the company's debt and equity. It is the average rate of return that the company must pay to those who either own p
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Some common words found in the essay are:
Questions Question, IRR WACC, fixed costs, cash flows, rate return, fixed costs increase, costs increase, variable cost, ice cream, times bad, value cash flows, gallons ice cream, amount return required, ice cream day, production company, variable costs, amount return,
Approximate Word count = 1358
Approximate Pages = 5 (250 words per page)

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