1. Austin's Bookstore sells marketing textbooks for $150 each. Normal annual sales is 28,000 textbooks, generating $600,000 of profits on sales. The degree of operating leverage is 3.5. What will profits be if sales were 27,000?

2. Suppose you purchase goods on terms of 2/10, net 30. Taking compounding into account, what annual rate of interest is implied by the cash discount (%)? (Assume a year has 365 days.)Suppose you purchase goods on terms of 2/10, net 30. Taking compounding into account, what annual rate of interest is implied by the cash discount (%)? (Assume a year has 365 days.)

3. Clearwater Inc. has a current bad debt ratio of 4%. The company hired a new controller who is proposing looser credit controls which will see the bad debt ratio increase to 8%; however, she expects a 10% increase in sales as a result. The cost of goods sold is 80% of the selling price. Per $100 of current sales, what is Clearwater Inc.s expected profit under the proposed credit standards?

4.

Bernice Inc. has a new project, and you were recruitment to perform their sensitivity analysis based on the estimates of done by their engineering department (there are no taxes):

Pessimistic Most Likely Optimistic

Investment 80 80 80

Revenue 40 40 40

Costs 20 15 10

The revenues and costs occur in perpetuity. The cost of capital is 8%. What is the NPV of the project in the optimistic permutation?