Author Question: Actively managed mutual funds charge higher management fees than passive funds. Assume that the net ... (Read 103 times)

DyllonKazuo · **on:** Jul 10, 2018

Actively managed mutual funds charge higher management fees than passive funds. Assume that the net return to an active fund (after fees) is 9.5 (0.79 per month) and the net return to a passive fund is 10.5 (0.875 per month).

Assume that an investor saves 600 per month (end-of-month) over thirty years. What is the difference in the future value of savings between investing in an active fund and a passive fund?
A) 295,152.00
B) 120,519.40
C) 247,352.36
D) 301,732.21

Question 2

Welker Products sells small kitchen gadgets for 15 each. The gadgets have a variable cost of 4 per unit, and
Welker Products' fixed operating costs are 220,000 per year. Welker Products' capital structure includes 55
debt and 45 equity.

Annual interest expense is 25,000, and the corporate tax rate is 35.
a. Calculate the break-even point in units.
b. If Welker Products sells 25,000 units, calculate the firm's EBIT and net income.
c. If sales increase ten percent from 25,000 units to 30,000 units, estimate the firm's expected EBIT and net
income.
d. Does Welker Products use operating leverage and/or financial leverage? Explain.

bbburns21 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

A

Answer to Question 2

a. Break-even = (220,000/(15 - 4)) = 20,000 units
b. Sales = 25,000 h 14 = 350,000
Variable Costs = 25,000 h 4 = 100,000
Fixed Costs = 220,000
EBIT = 350,000 - 100,000 - 220,000 = 30,000
EBT = 30,000 - 25,000 = 5,000
Net Income = 5,000 (1 - 0.