Answered: Last year, Cayman Corporation had sales…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 1P

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Question

Last year, Cayman Corporation had sales of $6,766,704, total variable costs of $2,557,445, and total fixed costs of $1,589,315. In addition, they paid $480,000 in interest to bondholders. Cayman has a 21% marginal tax rate. If Cayman's sales increase 5%, what should be the increase in earnings per share? SET YOUR CALCULATOR TO 4 DECIMAL PLACES. ROUND TO 2 DECIMAL PLACES AT THE END. DO NOT ENTER THE % SIGN. FOR EXAMPLE, IF YOUR ANSWER IS 9.4567, ENTER IT AS 9.46.

2. Kiwi Airlines has fixed operating costs of $3 million, and its variable costs amount to 22 percent of sales revenue. The firm has $2 million in bonds outstanding with a coupon interest rate of 8 percent . Revenues for the firm are $10 million and the firm is in the 21 percent corporate income tax bracket . What is the firm's degree of operating leverage ? SET YOUR CALCULATOR TO 4 DECIMAL PLACES . ROUND TO 2 DECIMAL PLACES AT THE END. FOR EXAMPLE , IF YOUR ANSWER IS 9.4567 ENTER IT AS 9.46 .

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