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Problem 12-4 Leverage Analysis You have developed the following

By Stanley King,2014-04-08 21:11
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Problem 12-4 Leverage Analysis You have developed the following

    Problem 12-4 Leverage Analysis: You have developed the following income statement for your corporation. It represents the most recent year’s operations, which ended yesterday. Sales $45,750,000 Variable costs 22,800,000 Revenue before Fixed costs $22,950,000 Fixed Costs 9,200,000 EBIT $13,750,000 Interest Expense 1,350,000 Earnings Before Taxes $12,400,000 Taxes @ 50% 6,200,000 Net Income $6,200,000 Your supervisor in the controller’s office has just handed you a memorandum asking for written responses to the following questions: a. What is the firm’s break even point in sales dollars? b. If sales should increase by 25% by what percent would earnings before taxes (and net income) increase?

    F$9,200,000$9,200,000a. S* = = = $22,800,000VC1;.4981;1;$45,750,000S

    $9,200,000= = $18,326,693.23

    .502

    b. (25%) (1.85) = 46.25%

    Problem 12-8 Operating Leverage Rocky Mount Metals Company manufactures an assortment of wood burning stoves. The Average selling price for the various units is $500.00 The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually. A. What is the break even point in units for the company B. What is

    the dollar sales volume the firm must achieve to reach the break even point? C. What is the degree of operation leverage for a production and sales level of 5000 units for the firm? (calculate to three decimal places.) D. What will be the projected effect on earnings before interest and taxes if the firm’s sales level should increase by 20 percent from the

    volume noted in part C?

    F$180,000a. Q= = = 1,200 units B $150P;V

    F$180,000b. S= = = $600,000 B VC1;0.701;

    S

    c. (20%) x (1.316) = 26.32%

    Problem 13-4 Remember to complete all parts of the problem and report the results of your analysis. Do not forget to show the necessary steps and explain how your attained

    that outcome Problem: Dividend Polices: The earnings for Crystal Cargo Inc. have been predicted for the next 5 years and are as follows. There are 1 million shares outstanding. Determine the yearly dividend per share to be paid if the following policies are enacted: A) A constant dividend payout ratio of 50 percent B) A stable dollar dividend targeted at 50 percent of the earnings over the 5-year period. C) A Small, regular dividend of $0.50 per share plus a year end extra when the profits in any year exceed $1,500,000. The year end extra dividend will equal 50 percent of profits exceeding $1,500,000. Year Profits After Taxes 1 $1,400,000 2 2,000,000 3 1,860,000 4 900,000 5 2,800,000

Year Profits After Taxes

     1 $1,400,000

     2 2,000,000

     3 1,860,000

     4 900,000

     5 2,800,000

     Total Profits After Taxes $8,960,000

     Shares Outstanding 1,000,000

     a. Constant Payout Ratio of 50%

     Year Dividend = Profits x Payout Ratio ? Shares

     1 $0.70 = $1,400,000 (.5) ? 1,000,000

     2 $1.00 = $2,000,000 (.5) ? 1,000,000

     3 $0.93 = $1,860,000 (.5) ? 1,000,000

     4 $0.45 = $ 900,000 (.5) ? 1,000,000

     5 $1.40 = $2,800,000 (.5) ? 1,000,000

     b. Stable target payout of 50%

    $8,960,000(.5) Target dividend: $0.90 = /5 years

    1,000,000

    c. Small regular dividend of $0.50 plus year-end extra

    Base profits $1,500,000

    % of extra profits 50.00%

     Year Dividend

     1 0.50

     2 0.75 = .50+($2,000,000-$1,500,000)(.5)/1,000,000

     3 0.68 = .50+($1,860,000-$1,500,000)(.5)/1,000,000

     4 0.50

     5 1.15 = .50+($2,800,000-$1,500,000)(.5)/1,000,000

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