Homework Answers
| Sales | 560000 |
| (-) Variable Operating costs ( 75% ) | 420000 |
| Contribution margin | 140000 |
| (-) Fixed operating costs | 90000 |
| Earnings before interest and taxes (EBIT) | 50000 |
| (-) Interest | 30000 |
| Earnings before taxes (EBT) | 20000 |
| (-) Taxes (35%) | 7000 |
| Net income | 13000 |
| (a) | |
| Degree of operating leverage (DOL) = Contribution margin / EBIT = 140000 / 50000 | 2.8 |
| Degree of financial leverage (DFL) = EBIT / EBT = 50000 / 20000 | 2.5 |
| Degree of total leverage (DTL) = Contribution margin / EBT = 140000 / 20000 | 7 |
| (b) | |
| Sales | 588000 |
| (-) Variable Operating costs ( 75% ) | 441000 |
| Contribution margin | 147000 |
| (-) Fixed operating costs | 90000 |
| Earnings before interest and taxes (EBIT) | 57000 |
| (-) Interest | 30000 |
| Earnings before taxes (EBT) | 27000 |
| (-) Taxes (35%) | 9450 |
| Net income | 17550 |
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12-18. Smith Bottling Company (SBC) expects this year's sales to be $560,000. SBC's variable operating costs...
#11 Variable operating costs 45,000 Gross profit Fixed operating costs 20,000) Net operating income25,000 Interest Earnings...
#11
Variable operating costs 45,000 Gross profit Fixed operating costs 20,000) Net operating income25,000 Interest Earnings before taxes 15,000) 10,000 4,000) 6,000 Taxes (40%) Net income Compute Surfside's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL). 12-11 Data Recovery Systems (DRS) has a degree of operating leverage (DOL) equal to 3.2x and a degree of total leverage (DTL) equal to 8x. DRS forecasts that this year's sales will be $300,000 and that...
2. A review of the degree of operating leverage (DOL) It is December 31. Last year,...
2. A review of the degree of operating leverage (DOL) It is December 31. Last year, Western Gas & Electric Company (WGEC) had sales of $8,000,000, and it forecasts that next year's sales will be $8,560,000. Its fixed costs have been and are expected to continue to be $600,000, and its variable cost ratio is 55.00% WGEC's capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 6%, and 300,000 shares of common...
5. Computing and interpreting the degree of operating leverage (DOL) It is December 31. Last year,...
5. Computing and interpreting the degree of operating leverage (DOL) It is December 31. Last year, Praxis Corporation had sales of $16,000,000, and it forecasts that next year's sales will be $17,600,000. Its fixed costs have been and are expected to continue to be $1,200,000, and its variable cost ratio is 40.00%. Praxis's capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 6%, and 300,000 shares of common equity. The company's profits...
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating...
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets (which is equal to its total invested capital) to be $200,000, and its tax rate to be 35%. Under Plan A it would finance the firm using 25% debt and 75% common equity. The interest rate on the debt would be 8.896, but under a contract with existing bondholders the TIE ratio would have to be maintained...
VanRee Recycling Inc. is expecting sales to rise 18 percent next year. Their most recent income...
VanRee Recycling Inc. is expecting sales to rise 18 percent next year. Their most recent income statement and next year's projected income statement are below Income Statement This Year 1,000,000 (400,000) (180,000) 420,000 (130,000) 290,000 (87,000) 203,000 Projected 1,180,000 (472,000) (180,000) 528,000 (130,000) 398,000 (119,400), 278,600 Sales Costs Depreciation EBIT Interest expense EBT Taxes (.3) Net Income Dividends 121,800 167,160 Additions to Retained Earnings 81,200 111,440 This year's Balance Sheet is Balance Sheet 60,000 25,000 85,000 Cash 70,000 30,000 80,000...
VanRee Recycling Inc. is expecting sales to rise 12 percent next year. Their most recent income...
VanRee Recycling Inc. is expecting sales to rise 12 percent next year. Their most recent income statement and next year's projected income statement are below Income Statement This Year ecte 1,120,000 (481,600) (180,000) 458,400 (130,000) 328,400 Sales 1,000,000 (430,000) (180,000) 390,000 (130,000) 260,000 (78,000) 182,000 Costs Depreciation EBIT Interest expense EBT Taxes (.3) (98,520 Net Income 229,880 Dividends 109,200 137,928 Additions to Retained Earnings 72,800 91,952 This year's Balance Sheet is: Balance Sheet Cash 70,000 30,000 80,000 Accounts pay 60,000...
Module 2 Assignment ABC Inc. 2020 sales are $1,000,000. Operating costs (excluding depreciation) are 65% of...
Module 2 Assignment ABC Inc. 2020 sales are $1,000,000. Operating costs (excluding depreciation) are 65% of sales. Net fixed assets are $195,000. Depreciation amounted to 12% of net fixed assets. Interest expenses are $105,000. The tax bill must be calculated using the corporate income tax table in the text, and ABC Inc. paid 8% of net income in dividends. Prepare ABC Inc.’s income statement for 2018: ABC Inc. Income Statement 2020 Sales Operating costs (excluding depreciation) EBITDA Depreciation EBIT Interest...
P 18-5 (similar to) Question Help Jim's Espresso expects sales to grow by 9.5% next year....
P 18-5 (similar to) Question Help Jim's Espresso expects sales to grow by 9.5% next year. Assume that Jim's pays out 80.3% of its net income. Use the following statements and the percent of sales method to forecast: a. Stockholders' equity b. Accounts payable The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return...
ABC Inc. 2018 sales are $1,100,000. Operating costs (excluding depreciation) are 70% of sales. Net fixed...
ABC Inc. 2018 sales are $1,100,000. Operating costs (excluding
depreciation) are 70% of sales. Net fixed assets are $205,000.
Depreciation amounted to 15% of net fixed assets. Interest expenses
are $100,000. The tax bill must be calculated using the corporate
income tax table in the text, and ABC Inc. paid 8% of net income in
dividends.
ABC Income Statement
2018
Sales...............................................................
Operating costs (excluding
depreciation).............
EBITDA..............................................................
Depreciation.......................................................
EBIT
..................................................................
Interest
Expense.................................................
EBT....................................................................
Taxes*** ................
1.) Your company has sales of $ 90, 700 this year and cost of goods sold...
1.) Your company has sales of $ 90, 700 this year and cost of goods sold of $ 63,500. You forecast sales to increase to $ 111,700 next year. Using the percent of sales method, forecast next year's cost of goods sold. The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return of standard...
#11
Variable operating costs 45,000 Gross profit Fixed operating costs 20,000) Net operating income25,000 Interest Earnings before taxes 15,000) 10,000 4,000) 6,000 Taxes (40%) Net income Compute Surfside's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL). 12-11 Data Recovery Systems (DRS) has a degree of operating leverage (DOL) equal to 3.2x and a degree of total leverage (DTL) equal to 8x. DRS forecasts that this year's sales will be $300,000 and that...
2. A review of the degree of operating leverage (DOL) It is December 31. Last year, Western Gas & Electric Company (WGEC) had sales of $8,000,000, and it forecasts that next year's sales will be $8,560,000. Its fixed costs have been and are expected to continue to be $600,000, and its variable cost ratio is 55.00% WGEC's capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 6%, and 300,000 shares of common...
5. Computing and interpreting the degree of operating leverage (DOL) It is December 31. Last year, Praxis Corporation had sales of $16,000,000, and it forecasts that next year's sales will be $17,600,000. Its fixed costs have been and are expected to continue to be $1,200,000, and its variable cost ratio is 40.00%. Praxis's capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 6%, and 300,000 shares of common equity. The company's profits...
Quigley Inc. is considering two financial plans for the coming year. Management expects sales to be $300,000, operating costs to be $265,000, assets (which is equal to its total invested capital) to be $200,000, and its tax rate to be 35%. Under Plan A it would finance the firm using 25% debt and 75% common equity. The interest rate on the debt would be 8.896, but under a contract with existing bondholders the TIE ratio would have to be maintained...
VanRee Recycling Inc. is expecting sales to rise 18 percent next year. Their most recent income statement and next year's projected income statement are below Income Statement This Year 1,000,000 (400,000) (180,000) 420,000 (130,000) 290,000 (87,000) 203,000 Projected 1,180,000 (472,000) (180,000) 528,000 (130,000) 398,000 (119,400), 278,600 Sales Costs Depreciation EBIT Interest expense EBT Taxes (.3) Net Income Dividends 121,800 167,160 Additions to Retained Earnings 81,200 111,440 This year's Balance Sheet is Balance Sheet 60,000 25,000 85,000 Cash 70,000 30,000 80,000...
VanRee Recycling Inc. is expecting sales to rise 12 percent next year. Their most recent income statement and next year's projected income statement are below Income Statement This Year ecte 1,120,000 (481,600) (180,000) 458,400 (130,000) 328,400 Sales 1,000,000 (430,000) (180,000) 390,000 (130,000) 260,000 (78,000) 182,000 Costs Depreciation EBIT Interest expense EBT Taxes (.3) (98,520 Net Income 229,880 Dividends 109,200 137,928 Additions to Retained Earnings 72,800 91,952 This year's Balance Sheet is: Balance Sheet Cash 70,000 30,000 80,000 Accounts pay 60,000...
P 18-5 (similar to) Question Help Jim's Espresso expects sales to grow by 9.5% next year. Assume that Jim's pays out 80.3% of its net income. Use the following statements and the percent of sales method to forecast: a. Stockholders' equity b. Accounts payable The Tax Cuts and Jobs Act of 2017 temporarily allows 100% bonus depreciation (effectively expensing capital expenditures). However, we will still include depreciation forecasting in this chapter and in these problems in anticipation of the return...
ABC Inc. 2018 sales are $1,100,000. Operating costs (excluding
depreciation) are 70% of sales. Net fixed assets are $205,000.
Depreciation amounted to 15% of net fixed assets. Interest expenses
are $100,000. The tax bill must be calculated using the corporate
income tax table in the text, and ABC Inc. paid 8% of net income in
dividends.
ABC Income Statement
2018
Sales...............................................................
Operating costs (excluding
depreciation).............
EBITDA..............................................................
Depreciation.......................................................
EBIT
..................................................................
Interest
Expense.................................................
EBT....................................................................
Taxes*** ................
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