a. Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 35%. b. Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average. Compare the companies to each other and the industry average. What conclusions can you draw about each operation?
a. Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 35%. b. Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average. Compare the companies to each other and the industry average. What conclusions can you draw about each operation?
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 87PSB
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![3. The following is information for three local auto dealers:
Average Selling Price
Unit Sales
Interest Expense
Variable Costs (% of Sales)
Fixed Costs
Preferred Dividends
Common Shares
Bell's
Domestics
$38,115
1,485
816,750
60%
9,900,000
990,000
4,500,000
Junior's
Used
$29,403
$32,670
1,832
1,238
1,089,000
3,267,000
1,633,500
45%
40%
48%
6,930,000 19,800,000 10,890,000
0
594,000
297,000
7,200,000 2,700,000 6,300,000
Europe's
Best
$56,628
842
Industry
Average
a. Using the information given in the above table, construct income
statements for each company and the industry average. Assume that
each company faces a tax rate of 35%.
b. Calculate the break-even points and the degrees of operating,
financial, and combined leverage for each company and the industry
average.
c. Compare the companies to each other and the industry average. What
conclusions can you draw about each operation?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff3e2d935-d7be-40a8-a316-8c428a147da3%2F89f5f1aa-5402-4875-8be1-403dd45c7dfd%2Fws6dti6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. The following is information for three local auto dealers:
Average Selling Price
Unit Sales
Interest Expense
Variable Costs (% of Sales)
Fixed Costs
Preferred Dividends
Common Shares
Bell's
Domestics
$38,115
1,485
816,750
60%
9,900,000
990,000
4,500,000
Junior's
Used
$29,403
$32,670
1,832
1,238
1,089,000
3,267,000
1,633,500
45%
40%
48%
6,930,000 19,800,000 10,890,000
0
594,000
297,000
7,200,000 2,700,000 6,300,000
Europe's
Best
$56,628
842
Industry
Average
a. Using the information given in the above table, construct income
statements for each company and the industry average. Assume that
each company faces a tax rate of 35%.
b. Calculate the break-even points and the degrees of operating,
financial, and combined leverage for each company and the industry
average.
c. Compare the companies to each other and the industry average. What
conclusions can you draw about each operation?
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