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Calculation of Net operating Income, Market Value and Stock Price.

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1. The Congress Company has identified two methods for producing playing cards.  One method involves using a machine having a fixed cost of $10,000 and variable costs of $1.00 per deck of cards.  The other method would use a less expensive machine (fixed cost = $5,000), but it would require greater variable costs ($1.50 per deck of cards).  If the selling price per deck of cards will be the same under each method, at what level of output will the two methods produce the same net operating income?

a. 5,000 decks

b. 10,000 decks

c. 15,000 decks

d. 20,000 decks

e. 25,000 decks

The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt out­standing carrying a coupon rate of 6 percent.  Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero-growth company.  AJC's current cost of equity is 10 percent, and its tax rate is 40 percent.  The firm has 10,000 shares of common stock outstanding.

2. What is AJC's current total market value?

a. $500,000

b. $528,000

c. $700,000

d. $728,000

e. $800,000

3. What is AJC's current stock price?

a. $50.00

b. $52.00

c. $52.80

d. $59.27

e. $60.36

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