can you please show me how to do the problems I circled? Thank you () EBIT an (b
ID: 2783129 • Letter: C
Question
can you please show me how to do the problems I circled? Thank you
() EBIT an (b) WHat sales have on Beachcomber's (ii) net income? 80 0 financial lever nd a degree of total lever 10.0. Ensured expects sales to ree 16-17 Ensured Insurance has a degree of fina age (DFL) equal to 4.0 and a degree of total age age (DTL) equal to 10.0. Ensured expects saler be $600,000 this year, and its net profit maroi ercent. (a) What is Ensured's degree of operatin leverage (DO 7 percent higher than expected, what will income be? L)2 (b) If Ensured's sales turn out to be 16-18 Analysts have evaluated the Wright Sign Compa and discovered that when sales are $400,000, EBIT equals $125,000, the company's degree of operating leverage (DOL) is 2.0, its degree of financial leverage (DFL) is 4.0, and EPS equals $2.50. According to this information, what will Wright's EBIT be if sales actu- ally equal $360,000 rather than $400,000? What will the EPS be? 16-19 Callie Corporation's products sell for The variable cost o each product is $135, and fhed operating costs are $371,250. Callie pays $61,8:5 interest on its outstanding debt each year, and marginal tax rate is 40 percent. If Callie expects , and fixed sell 11,000 units, what is itExplanation / Answer
16 - 17 :
DTL = DOL x DFL
a. Ensured's degree of operating leverage = DTL / DFL = 10.00 / 4.00 = 2.50.
b. Expected net income = $ 600,000 x 8% = $ 48,000.
However, if sales are 7% higher, net profit margin is expected to be higher by 7 % x 2.50 = 17.5 %
Therefore, net income = $ 48,000 x 117.5 % = $ 56,400.
16-18 :
Contribution Margin / EBIT = Contribution Margin / $ 125,000 = 2.
Contribution Margin = $ 125,000 x 2 = $ 250,000.
Fixed Operating Costs = $ 250,000 - $ 125,000 = $ 125,000
Contribution Margin Ratio = $ 250,000 / $ 400,000 * 100 = 62.5 %
If sales are actually $ 360,000, EBIT = $ 360,000 x 62.5% - $ 125,000 = $ 100,000
DFL = EBIT / ( EBIT - Interest) = 125,000 / ( 125,000 - Interest) = 4.
or 125,000 - Interest = 31,250.
Interest = 93,750
Common shares outstanding = $ 31,250 / 2.5 = 12,500 shares.
If sales are actually $ 360,000, Net Income = EBIT - Interest = $ 100,000 - $ 93,750 = $ 6,250.
EPS = $ 6,250 / 12,500 = $ 0.50 per share.
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