Question

Please show in Excel

Helzburg Corp. has $3,000,000 in sales. Fixed costs are estimated to be $120,000 and variable costs are equal to 50% of sales. The company has $1,300,000 in debt outstanding at a before-tax cost of 11%. Assume a 20% tax rate; Helzburg has $5,000,000 in stockholder equity. Problem 8: If Helzburg sales were to increase by 20%, how much of a percentage increase would you expect in the company's net income? Problem 9: What is the Return on Equity now and after the increase in sales? Problem 10: What is the ROIC now and after the increase in sales? 20% increase in sales now Sales 3000000 FC 120000 Vc 1500000 EBIT 1380000

Answer 1

		Now	20% increase in sales
Sales	3,000,000	3,600,000
Less: Variable cost (50%)	1,500,000	1,800,000
Contribution	1,500,000	1,800,000
Less:	Fixed cost	120,000	120,000
EBIT		1,380,000	1,680,000
Less:	Interest (1300000*11%)	143,000	143,000
Income Before Income Tax (EBT)	1,237,000	1,537,000
Less: Tax@20%	247,400	307,400
Net income	989,600	1,229,600
Shareholders equity	5,000,000	5,000,000
ROE(Net income/Shareholders equity)	19.79%	24.59%
NOPAT (EBIT*(1-Tax rate))	1,104,000	1,344,000
Invested capital (Equity+Debt)	6,300,000	6,300,000
ROIC(NOPAT/invested capital)	17.52%	21.33%

Increase in net income = (1229600-989600)/989600

= 24.25%