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- Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. Compute the break-even point for each company. Explain why the break-even point for Quintex, Inc., is higher. 3. Suppose that both companies experience a 50 percent increase in revenues. Compute the percentage change in profits for each company. Explain why the percentage increase in Quintexs profits is so much greater than that of Trimax.Peterson Manufacturing is evaluating two different operating structures which are described below. The firm has annual interest expense of $250, common shares outstanding of 1,000, and a tax rate of 40 percent. Fixed Cost Price per unit Variable cost per unit Operating Structure 1 $500 $1 $0.75 Operating Structure 2 $1200 $1 $0.70 1. For each operating structure, calculate x. EBIT and EPS at 10,000, 20,000, and 30,000 units. y. the degree of operating leverage (DOL) and degree of total leverage (DTL) using 20,000 units as a base sales level. z. the operating breakeven point in units. 2. Which operating structure has greater operating leverage and business risk? 3. If Peterson projects sales of 20,000 units, which operating structure is recommended?N. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $8,000 and the total fixed expenses are $10,000. Under this scenario and assuming that total sales remain the same , what is the degree of operating leverage? O. Using the degree of operating leverage that you computed in the previous question , what is the estimated percent increase in net operating income of a 10% increase in sales ?
- Bulldogs Inc. has sales of P4,500,000, variable costs equal 75% of sales, and a fixed interest costs of P750,000. The current operating income of the firm is P1,050,000. What is the degree of combined leverage? a. 5.85 b. 3.75 c. 4.25 d. 4.05Given the following information for Computech, compute the firm’s degree of combined leverage (dollars are in thousands except EPS). Round your answer to one decimal place. Year 1 Year 2 Sales $550,000 $621,500 Fixed costs 110,000 110,000 Variable costs 200,000 226,000 Earnings before interest and taxes $240,000 $285,500 Interest 25,000 25,000 Earnings per share (EPS) $4.30 $5.21 Degree of combined leverage:XYZ company expects in the coming year: sales of 40000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30000, interest of $50000, and preferred stock dividends of $24000. The Company is in the 40% tax bracket. a. Compute the following and explain their meaning: 1- Degree of Operating Leverage (DOL). 2- Degree of Financial Leverage (DFL). 3- Degree of Total Leverage (DTL). b. If XYZ company’s Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in earnings before interest and tax (EBIT).
- Please, use these formulas that are in the image only. XYZ company expects in the coming year: sales of 40000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30000, interest of $50000, and preferred stock dividends of $24000. The Company is in the 40% tax bracket. a. Compute the following and explain their meaning: 1- Degree of Operating Leverage (DOL). 2- Degree of Financial Leverage (DFL). 3- Degree of Total Leverage (DTL). b. If XYZ company’s Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in earnings before interest and tax (EBIT).XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operatingcosts of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stockdividends of $24,000. The Company is in the 40% tax bracket.1. Compute XYZ company’s Degree of Total Leverage (DTL) and explain its meaning.2. If XYZ company’s Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case ofa 10% increase in sales revenue2). annually. Company’s annual sales are OMR (4) million, its tax rate is 30%, and its rate on equity (ROE) is 20% and tota asset (TA)was OMR (1500) thousand. Omani Company sold .product at OMR 5.50 per unit; its variable operating costs are OMR (2.5) per unit -:Answer the following .Calculate the firm’s degree of Operating leverage a) .Calculate the firm’s degree of financial leverage b) ?What is the combine effect of fixed Operating and Financial Costs c)The Omani Company has OMR (800) thousand of total debt (Liabilities) outstanding (Liabilities), and it pays an interest of OMR (80) thousand
- Firm R has sales of 100,000 units at $2 per unit, variable operating costs of $1.70 per unit, and fixed operating costs of $6,000. Interest is $10,000 per year. Firm W has sales of 100,000 units at $2.50 per unit, variable operating costs of $1.00 per unit, and fixed operating costs of $62,500. Interest is $17,500 per year. Assume that both firms are in the 40% tax bracket. Compute the degree of operating, financial and total leverage for firm R. Compute the degree of operating, financial and total leverage for firm W. Compare the relative risks of the two firms.ACME, Inc. reported the following income statement for 2009: Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes (30%) 210,000 Net Income $490,000 Earnings Per Share $4.90 If ACME's sales next year increase by 20%, ACME's EBIT will increase A. 20%, showing no financial leverage. B. over 35%, due to operating leverage. C. 20%, showing no operating leverage. D. over 35%, due to operating leverage and financial leverage.Bulldogs Inc. has sales of P4,500,000, variable costs equal 75% of sales, and a fixed interest costs of P750,000. The current operating income of the firm is P1,050,000. What is the degree of combined leverage?
