1) Find the break even point given the following information: total costs: $135,000; variable costs per unit = $10; sale price per unit = $25; sales = 10,000 units.

2) Bavarian Sausage, Inc. has a cost equity of 22% and a beta of 1.8. The expected market return is 14%.

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What is the risk-free rate?

3) You are considering the purchase of a business that produces net cash flows of $350,000 per year in perpetuity. In a perfectly competitive market, what should be the asking price for the business if the firm’s cost of capital is 15%?

4) A firm is considering investing $10 million today to start a new product line. The future of the project is unclear however and depends on the state of the economy. The project will last 5 years. The yearly cash flows for the project are shown below for the different states of the economy. What is the expected NPV for the project if the cost of capital is 12%? Project Chance of YearlyOutcomeOutcomeCash Flow GOOD 25% $8.00 AVERAGE 50% $3.00 BAD 25% ($2.00)

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