Compute Hilfiger\'s projected operating income if sales decreased to 80% of curr

Question

Compute Hilfiger's projected operating income if sales decreased to 80% of current sales or increased to 120% of current sales. Compare and discuss the results of your projection. Identify the company that has the higher operating leverage. Financial statement information is presented below for Hilary Corporation, a producer of mountain climbing gear. The company expects sales to increase by about 20% in 2007. Hilary's management is considered automating match of the company's production process. The automation would result in about half of the company's cost of goods sold being fixed. Currently, most of these costs vary in proportion to sales, as shown in the financial numbers presented above. Hilary's management is considered automating match of the company's production process. The automation would result in about half of the company's cost of goods sold being fixed. Currently, most of these costs vary in proportion to sales, as shown in the financial numbers presented above. Assume that half (5231)million) of Hilary's cost of goods sold in 2006 is fixed and that the other half increases in proportion to sales, an increase of 20%, Compute the company's expected cost of goods sold, Using the same assumption as part A, Compute expected net income for 2007. Assume that income taxes are 35% of pretax income. Round to the nearest million. Compute your results with those presented above. Which assume that cost of goods sold varies in proportion to sales, What effect would the automation have on Hillary's profitability? What effect would it have on the company's risk? Explain your answer. information is provided below from the financial statements of two companies for 2007.

Explanation / Answer

Adjusted

expected

expected 2006 2007 sales 692 830.00 costo of good sold 462 508.2 operasting expenses 206 247 operaing income 24 74.80 interest expenses 5 5 pbt 19 69.80 tax 35% 7 24.43 net income 12 45.37

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