Answered: be sold at $4.50 per share A) Compute…

be sold at $4.50 per share A) Compute break-even point. B) Compute DOL. C) Compute DFL and DCL for both financing plans.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

XYZ Co is opening their new business next month. They have provided the following information:

Variable Costs = 35% of sales

Fixed Costs = 360,000

1st Years Sales est. = 1,050,000

Startup Costs = 1,800,500

Two Financing Options:

1) 60% Equity Financing and 40% Debt at 13%

2) 100% Equity - Common Stock can be sold at $4.50 per share

A) Compute break-even point.
B) Compute DOL.
C) Compute DFL and DCL for both financing plans.

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