Illinois Tool Company's (ITC) fixed operating costs are $1,260,000, and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm has $3,000,000 in bonds outstanding at an interest rate of 8%. ITC has 30,000 shares of $5 preferred stock and 150,000 shares of common stock outstanding. ITC is in the 50% corporate income tax bracket. Forecasted sales for next year are $9 million. What is ITC's degree of operating leverage at a sales level of $9 million? a. 1.26 b. 1.60 c. 1.875 d. 3.0
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which one is correct please confirm?
QUESTION 13
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Illinois Tool Company's (ITC) fixed operating costs are $1,260,000, and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm has $3,000,000 in bonds outstanding at an interest rate of 8%. ITC has 30,000 shares of $5
preferred stock and 150,000 shares of common stock outstanding. ITC is in the 50% corporate income tax bracket.Forecasted sales for next year are $9 million. What is ITC's degree of operating leverage at a sales level of $9 million?a. 1.26b. 1.60c. 1.875d. 3.0
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- which one is correct please confirm? QUESTION 33 Illinois Tool Company's (ITC) fixed operating costs are $1,260,000, and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm has $3,000,000 in bonds outstanding at an interest rate of 8%. ITC has 30,000 shares of $5 preferred stock and 150,000 shares of common stock outstanding. ITC is in the 50% corporate income tax bracket. Forecasted sales for next year are $9 million. What is ITC's degree of financial leverage at an EBIT level of $1,440,000? a. 1.20 b. 1.60 c. 3.0 d. 1.875Wingler Communications Corporation (WCC) produces airpods that sell for $28.70 per set, and this year's sales are expected to be 450,000 units. Variable production costs for the expected sales under present production methods are estimated at $10,500,000, and fixed production (operating) costs at present are $1,560,000. WCC has $4,800,000 of debt outstanding at an interest rate of 7%. There are 240,000 shares of common stock outstanding, and there is no preferred stock. The dividend payout ratio is 70%, and WCC is in the 25% federal-plus-state tax bracket. WCC is a small company with average sales of $25 million or less during the past 3 years, so it is exempt from the interest deduction limitation. The company is considering investing $7,200,000 in new equipment. Sales would not increase, but variable costs per unit would decline by 20%. Also, fixed operating costs would increase from $1,560,000 to $1,800,000. WCC could raise the required capital by borrowing $7,200,000 at 10% or by…Wingler Communications Corporation (WCC) produces airpods that sell for $28.70 per set, and this year's sales are expected to be 450,000 units. Variable production costs for the expected sales under present production methods are estimated at $10,500,000, and fixed production (operating) costs at present are $1,560,000. WCC has $4,800,000 of debt outstanding at an interest rate of 7%. There are 240,000 shares of common stock outstanding, and there is no preferred stock. The dividend payout ratio is 70%, and WCC is in the 25% federal-plus-state tax bracket. WCC is a small company with average sales of $25 million or less during the past 3 years, so it is exempt from the interest deduction limitation. The company is considering investing $7,200,000 in new equipment. Sales would not increase, but variable costs per unit would decline by 20%. Also, fixed operating costs would increase from $1,560,000 to $1,800,000. WCC could raise the required capital by borrowing $7,200,000 at 10% or by…
- Albatross Airline’s fixed operating costs are $5.9 million, and its variable cost ratio is 0.25. The firm has $3 million in bonds outstanding with a coupon interest rate of 9 percent. Albatross has 30,000 shares of preferred stock outstanding, which pays a $2.35 annual dividend. There are 80,000 shares of common stock outstanding. Revenues for the firm are $9 million, and the firm is in the 40 percent corporate income tax bracket. Compute the following for the firm. Round your answers to three decimal places. Degree of operating leverage: Degree of financial leverage: Degree of combined leverage: Interpret this value. Enter your answer for dollar value in whole dollar. For example, an answer of $1.20 million should be entered as 1,200,000, not 1.20. From a base sales level of $ , each one percent increase in sales results in a percent increase in EPS .The company BAC inc. sells a single product for $ 5 a unit. Its annual fixed operating costs are estimated at $ 180,000 including $ 30,000 in depreciation. Its unit variable cost is estimated at $ 2. The amount of interest paid annually to bondholders is $ 45,000. The corporate tax rate is 35%.a) Estimate the general breakeven point of the business?b) Estimate the company's cash flow breakeven point?c) Estimate the operating leverage of the business at a sales level ofd) 120,000 units?e) Estimate the company's financial leverage for an EBIT of $ 50,000?f) Estimate the total leverage of the business at a sales level of 80,000 units?which one is correct answer please confirm? QUESTION 37 Kermit's Hardware's (KH) fixed operating costs are $20.8 million, and its variable cost ratio is 0.30. The firm has $10 million in bonds outstanding with a coupon interest rate of 9%. KH has 200,000 shares of common stock outstanding. The firm has revenues of $32.2 million, and its marginal tax rate is 40%. Compute KH's degree of operating leverage. a. 12.95 b. 14.81 c. 4.54 d. 5.19
- McGee Corporation has fixed operating costs of $14 million and a variable cost ratio of 0.60. The firm has a $16 million, 8 percent bank loan and a $4 million, 13 percent bond issue outstanding. The firm has 0.8 million shares of $5 (dividend) preferred stock and 2.9 million shares of common stock ($1 par). McGee’s marginal tax rate is 40 percent. Sales are expected to be $120 million. Compute McGee’s degree of operating leverage at an $120 million sales level. Round your answer to two decimal places. Compute McGee’s degree of financial leverage at an $120 million sales level. Round your answer to two decimal places. If sales decline to $114 million, forecast McGee’s earnings per share. Round your answer to the nearest cent.$Yor Inc. most recently sold 200,000 units at P12.00 each; its variable operating costs are P9.00 per unit, and its fixed operating costs are P400,000. Annual interest charges total P75,000, and the firm has 1,000 shares of P10 (annual dividend) preferred stock outstanding. It currently has 5,000 shares of common stock outstanding. Assume that the firm is subject to a 25% tax rate. Questions: At what level of sales (in units) would the firm break even on operations? (Round off final answer to the nearest peso) Calculate the firm’s earnings per share (EPS) in tabular form at the current level of sales. (Round off final answer to the nearest centavo or two decimal places) Calculate the firm’s earnings per share (EPS) in tabular form at a 220,000-unit sales level. (Round off final answer to the nearest centavo or two decimal places) Using the current P2,400,000 level of sales as a base, calculate the firm’s degree of operating leverage (DOL). (Round off final answer to the nearest two…Wingler Communications Corporation (WCC) produces premium stereo headphones that sell for $28.80 per set, and this year's sales are expected to be 450,000 units. Variable production costs for the expected sales under present production methods are estimated at $10,000,000, and fixed production (operating) costs at present are $1,560,000. WCC has $4,800,000 of debt outstanding at an interest rate of 8%. There are 240,000 shares of common stock outstanding, and there is no preferred stock. The dividend payout ratio is 70%, and WCC is in the 40% federal-plus-state tax bracket. The company is considering investing $7,200,000 in new equipment. Sales would not increase, but variable costs per unit would decline by 20%. Also, fixed operating costs would increase from $1,560,000 to $1,800,000. WCC could raise the required capital by borrowing $7,200,000 at 10% or by selling 240,000 additional shares of common stock at $30 per share. 1. At what unit sales level would EPS = 0 under the three…
- Wingler Communications Corporation (WCC) produces premium stereo headphones that sell for $28.80 per set, and this year’s sales are expected to be 450,000 units. Variable production costs for the expected sales under present production methods are estimated at $10,200,000, and fixed production (operating) costs at present are $1,560,000. WCC has $4,800,000 of debt outstanding at an interest rate of 8%. There are 240,000 shares of common stock outstanding, and there is no preferred stock. The dividend payout ratio is 70%, and WCC is in the 40% federal-plus-state tax bracket. The company is considering investing $7,200,000 in new equipment. Sales would not increase, but variable costs per unit would decline by 20%. Also, fixed operating costs would increase from $1,560,000 to $1,800,000. WCC could raise the required capital by borrowing $7,200,000 at 10% or by selling 240,000 additional shares of common stock at $30 per share. B. At what unit sales level would WCC have the same EPS…The Hurricane Lamp Company forecasts that next year’s sales will be $6 million. Fixed operating costs are estimated to be $800,000, and the variable cost ratio (that is, variable costs as a fraction of sales) is estimated to be 0.75. The firm has a $600,000 loan at 12 percent interest. It has 20,000 shares of $2.5 preferred stock and 40,000 shares of common stock outstanding. Hurricane Lamp is in the 40 percent corporate income tax bracket. Forecast Hurricane Lamp’s earnings per share (EPS) for next year. Develop a complete income statement using the revised format illustrated in Table 14.1. Then determine what Hurricane Lamp’s EPS would be if sales were 12 percent above the projected $6 million level. Round your answers to the nearest cent.EPS1: $ EPS2: $ Calculate Hurricane Lamp’s degree of operating leverage (DOL) at a sales level of $6 million using the following formulas. The definitional formula (Equation 14.1). Round your answer to three decimal places. The simpler,…a) The sales price for a new company would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be Rs.2.50; and fixed costs are estimated at Rs.120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero? b) A company completed a 3-for-1 stock split. Immediately prior to the split, its stock sold for Rs.150 per share. The firm's total market value was unchanged by the split. Other things held constant, what is the best estimate of the stock's post-split price? c) A company has a capital budget of Rs.3,000,000. It wants to maintain a target capital structure that is 15% debt and 85% equity. It forecasts that its net income this year will be Rs.3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?