Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please answer all the questions.. Q6.4 c. What is the minimum load factor at which the company breaks even? [6.3] d. What load factor would

please answer all the questions.. image text in transcribed
Q6.4 c. What is the minimum load factor at which the company breaks even? [6.3] d. What load factor would the company have to achieve so that it obtained a 10 percentage-point increase in the ROIC (e.g., an ROIC increasing from 5 percent to 15 percent)? [6.3) (Oscar's Office Building) Oscar is considering getting into the real estate business. He's looking at buying an existing office building for $1.8 million in cash. He wants to estimate what his return on invested capital (ROIC) will be on an annual basis. The building has 14,000 square feet of rentable space. He'd like to set the rent at $4.00 per square foot per month. However, he knows that demand depends on price. He estimates that the percent- age of the building he can fill roughly follows the equation % Occupied = 2 -0.3 x Rent (rent is in dollars per square foot per month) So, at $4.00, Oscar thinks he can fill about 80 percent of the office space. Oscar considers two categories of costs: variable costs, which are a function of the square feet occupied, and fixed costs. Fixed costs will be $8,000 per month and include such items as insurance, maintenance, and security. Variable costs cover such things as electricity and heat and run $1.25 per month for each square foot occupied. a. Draw an ROIC (return on invested capital) tree for the company. [6.2] b. What is the ROIC? [6.2] c. What would be the new ROIC be if Oscar decides to charge rent of $5.00 per square foot per month? [6,3]

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing

Authors: Thomas D. Hubbard, J. R. Johnson, Steve Johnson, Joel D. Hubbard

6th Edition

0873932609, 9780873932608

More Books

Students also viewed these Accounting questions

Question

elucidate the characteristics of international projects

Answered: 1 week ago

Question

Which are non projected Teaching aids in advance learning system?

Answered: 1 week ago