Compute the Degree of Financial Leverage for the company below: Wolfgang's Steak House Income Statement for Year Ended December 31, 2016 Sales (20,000 units @ $50 each) Less: Variable costs (20,000 units @ $20 each) Less Fixed Costs $1,000,000 400,000 200,000 $400,000 Earnings before interest & taxes( EBIT) Interest expense Earnings before taxes 75,000 $325,000

Compute the Degree of Financial Leverage for the company below: Wolfgang's Steak House Income Statement for Year Ended December 31, 2016 Sales (20,000 units @ $50 each) Less: Variable costs (20,000 units @ $20 each) Less Fixed Costs $1,000,000 400,000 200,000 $400,000 Earnings before interest & taxes( EBIT) Interest expense Earnings before taxes 75,000 $325,000

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 11P

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Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are $600,000. Company B is a service firm with current service revenue of $2,800,000 and a 15% contribution margin. Company Bs fixed costs are $375,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 15% increase in sales? Explain why.
Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
Roses and Thorns Inc. involved in selling chocolate bar. During 2016, 100,000 bars were sold for a unit price of P12.00. This amount of sales generated earnings before interest and taxes of P200,000. Supposed that the 2016 degree of operating leverage is 3.2 times, what should be reported by Roses and Thorns Inc. as variable expenses in the CVP income statement?
In 2018, Downy Co presented total variable cost at $687.50; total fixed cost at $6,750,000; sales price per unit $1,250; sold 20,000 units; tax rate at 30%. What is the required sales amount to equal 20A net income after tax if the company is the entity is to spend $562,500 for the next month?
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The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated. Q. One of Clear Panes’s regular customers asks for a special window with stained glass inserts. The customer requires 2,500 of these windows. Clear Panes estimates its variable cost for these special units at $105 each. Clear Panes will also have to undertake new investment of $300,000 to produce these windows. What is the minimum selling price that will make the deal acceptable to Clear Panes? Also suppose that the…
The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated. Q. What is the expected residual income in 2017?
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The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated. Q. One of Clear Panes’s regular customers asks for a special window with stained glass inserts. The customer requires 2,500 of these windows. Clear Panes estimates its variable cost for these special units at $105 each. Clear Panes will also have to undertake new investment of $300,000 to produce these windows. What is the minimum selling price that will make the deal acceptable to Clear Panes? Also suppose that the…
The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window. Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated. Q. One of Clear Panes’s regular customers asks for a special window with stained glass inserts. The customer requires 2,500 of these windows. Clear Panes estimates its variable cost for these special units at $105 each. Clear Panes will also have to undertake new investment of $300,000 to produce these windows. What is the minimum selling price that will make the deal acceptable to Clear Panes?
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awn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows: Sales $ 37,000,000 Operating expenses: Variable expenses $ 22,200,000 Fixed expenses 7,400,000 Total expenses 29,600,000 Operating profit $ 7,400,000 Required: 1. Determine the breakeven point in sales dollars. 2. Determine the required sales in dollars to earn a before-tax profit of $8,500,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 3. What is the breakeven point in sales dollars if the variable expenses increases by 8%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)