A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,000, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 8,000 Debt ratio 45% Tax rate 35% BEP ratio 13.31% EBT 600 Sales 15,000 These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the balance sheet will remain constant. What is the company’s cost of debt? (Hint: Work only with old data.)

A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,000, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 8,000 Debt ratio 45% Tax rate 35% BEP ratio 13.31% EBT 600 Sales 15,000 These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the balance sheet will remain constant. What is the company’s cost of debt? (Hint: Work only with old data.)

Name: A company has just been taken over by new management that believes it
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: A company has just been taken over by new management that believes it can raise earnings beforetaxes (EBT) from $600 to $1,000, merely by cutting overtime pay and reducing cost of goods sold. Priorto the change, the following data applied:Total asset

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter18: Cost-volume-profit Analysis (cvp)

Section: Chapter Questions

Problem 1R: Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided...

See similar textbooks

Similar questions

Rangoon Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5. The new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average?
One of ABC product line has been unprofitable for the past 18 months. The latest monthly income statement for the product line is as follows: Sales revenue 19,000 Less: Cost of sales 8,500 Gross profit 10,500 Operating expenses Depreciation 2,750 Insurance 1,400 Manager salary 1,100 Supplies 1,750 Utilities 1,100 Wages 5,000 Total operating expenses 13,100 Profit or loss (2,600) In relation to the operating expenses, utilities, manager salary and $2,000 of the depreciation expense are allocated to this product line. Required: Assume that the sales of other product lines will not be affected by the decision, evaluate whether the unprofitable product line should be disestablished from a financial standpoint.
Jan Shumard, president and general manager of Danbury Company, was concerned about thefuture of one of the company’s largest divisions. The division’s most recent quarterly incomestatement follows:Sales $3,751,500Less: Cost of goods sold 2,722,400Gross profit $1,029,100Less: Selling and administrative expenses 1,100,000Operating (loss) $ (70,900)Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additionalinformation has been gathered:• The division produces one product at a selling price of $100 to outside parties. Thedivision sells 50% of its output to another division within the company for $83 per unit(full manufacturing cost plus 25%). The internal price is set by company policy. If thedivision is shut down, the user division will buy the part externally for $100 per unit.• The fixed overhead assigned per unit is $20.• There is no alternative use for…
16. At the end of the year, a company finds that it has under-applied factory overhead by $1,000. What would be the most common accounting treatment in this case? Increase Assets by $1,000 on the Balance Sheet Increase Profit by $1,000 in the Income Statement Increase Liabilities by $1,000 on the Balance Sheet Decrease Cost of Goods Sold by $1,000 in the Income Statement Increase Cost of Goods Sold by $1,000 in the Income Statement.
Nutty sales last year were 15, 000 , and its year-end total assets were P355,000. The average firm in the Industry has a total assets turnover ratio of 2.4. The new CFO believes the company has excess assets that can be sold so as to bring the total assets turnover ratio down to the industry average without affecting sales. By how much must the assets be reduced to bring the total assets tumover ratio to the industry average, holding sales constant?
Doorchime Company makes doorbells. It has a weighted-average cost of capital of 6% and total assets of $5,690,000. Doorchime has current liabilities of $550,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income taxes. One of the expenses for accounting purposes was a $70,000 advertising campaign run in early January. The entire amount was deducted this year, although the Doorchime CEO believes the beneficial effects of this advertising will last 4 years. Q. Calculate EVA for the year. Adjust both the year-end assets and operating income for advertising assuming that for the purposes of economic value added the advertising is capitalized and amortized on a straightline basis over 4 years.
Doorchime Company makes doorbells. It has a weighted-average cost of capital of 6% and total assets of $5,690,000. Doorchime has current liabilities of $550,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income taxes. One of the expenses for accounting purposes was a $70,000 advertising campaign run in early January. The entire amount was deducted this year, although the Doorchime CEO believes the beneficial effects of this advertising will last 4 years. Q. Calculate residual income, assuming Doorchime defines investment as total assets.
Question 3 A company has just been taken over by new management that believes it can raise earnings before taxes (EBT) from $600 to $1,100, merely by cutting overtime pay and reducing cost of goods sold. Prior to the change, the following data applied: Total assets 7,500 Debt ratio 40% Tax rate 40% BEP ratio 13.31% EBT 600 Sales 10,000 These data have been constant for several years, and all income is paid out as dividends. Sales, the tax rate, and the balance sheet will remain constant. What is the company’s cost of debt?
Wie Corp's sales last year were $260,000, and its year-end total assets were $360,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant? Do not round your intermediate calculations.
A company has five product lines, one of which has Fixed expenses of $173,657 and a Net loss of $40,203. If this product line is eliminated, 48% of the fixed expenses can be eliminated and the remainder will be allocated to other product lines. If management decides to eliminate this product line, the amount the company's net income will increase or decrease(-) is? Round to the nearest dollar and put a negative sign - before a decrease. Do not type the dollar sign.
Kiley Corporation had the following data for the most recent year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? (Hint: Calculate the CCC for original and then for revised and take the difference. SHOW ALL WORK)
Kiley Corporation had the following data for the most recent year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? Original Revised Annual sales: unchanged $110,000 $110,000 Cost of goods sold: unchanged $80,000 $80,000 Average inventory: lowered by $4,000 $20,000 $16,000 Average receivables: lowered by $2,000 $16,000 $14,000 Average payables: increased by $2,000 $10,000 $12,000 Days in year 365 365