Question

Problem 14-12 BWP projects sales of 100000 units next year at an average price of $50 per unit. Variable costs are estimated at 40% of revenue, and fixed costs will be $2.4 million. BWP has $1 million in bonds outstanding, on which it pays 7.5%, and its marginal tax rate is 35%. There are 100000 shares of stock outstanding which trade at their book value of $30. Compute BWP's contribution, contribution margin, net income, DOL, and EPS. Round the answers to two decimal places. Enter your net income answer in whole dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. Contribution per unit % Contribution Margin Net Income A DOL EPS A

Answer 1

Contribution= $30

Contribution margin= 40%
Net income= $390,000

DOL= 5 times

EPS= $3.15

1 CONTRIBUTION PER UNIT Contribution Price - Variable cost Variable coste 40% of revenue -50*40%-$20 Price $50 therefore, Contribution - $50 $20-$30 4. DOL(Degree of Operating leverage Sake change in Operating income/lege change in Units sold QIP VIP-V) C-100000SSO $20 V 100000 550 520 52.400.000 5times 2. CONTRIBUTION MARGIN Contribution margin -QIP-VI/QP (100000"5201100000"550 40% 5. EPS Earning Per Share) (Net income Dividend/No of shares outstanding Net Income-5390,000 as per answer no 3 Dividend 75% of $1,000,000 - $75,000 No of Share 100000 therefore EPS-15390,000-$75,0001/100000 SL15 3. NET INCOME Net Income-Sales-FC-VC-taxes Sales 100000*550-S5,000,000 FC=S2,400,000 VC-40% of Revenue=$5,000,00040-$2,000,000 Taxes-@ 35% therefore, N (55,000,000-$2,4000,000-$2,000,000)*(1.35) $390,000