(Break-even analysis) You have developed the income statement in the popup window, E, for the Hugo Boss Corporation. It represents the most recent year's operations, whichended yesterday. Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:a. What is the firm's break-even point in sales dollars?b. If sales should increase by 25 percent, by what percent would earnings before taxes (and net income) increase?a. What is the firm's break-even point in sales dollars?$(Round to the nearest dollar.)Data table(Click on the following icon in order to copy its contents into a spreadsheet.)Sales$50,582,615Variable costs(26,393,000)Revenue before fixed costs$24,189,615Fixed costs(10,036,000)EBIT$14,153,615Interest expense(1,334,177)Earnings before taxes$12,819,438Taxes at 21%(2,692,082)Net income$10,127,356PrintDone

a) calculation of Firm's Break-even in sales dollars:= Fixed Cost of the firm/Contribution margin…

Answered: (Break-even analysis) You have…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following scenario: Fuzzy Button Clothing Company’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year. 1. Fuzzy Button is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT). 2. The company’s operating costs (excluding depreciation and amortization) remain at 70.00% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company’s tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Fuzzy Button expects to pay $100,000 and $896,963 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar.
Creative Analysis, Inc. is currently operating at maximum capacity. Assume that all costs and net working capital vary directly with sales. The dividend payout ratio will remain constant. How much is the External Financing needed (EFN) if sales are projected to increase by 10%? Income Statement end of last year: Sales $8,500 Costs $7,960 Net Income $540 Dividends paid = $324 Balance Sheet as of end of last year: Cash Accounts Receivables Inventory Net Fixed Assets Total assets -$25.1 $156.1 O $296.5 -$67.6 O $274.9 Assets $1,600 $975 $2,425 $2,200 $7,200 Accounts Payable Long-Term Debt Common Stock Retained Earnings Total Liabilities & Equity Liabilities & Equity $2,075 425 $3000 $1,700 $7,200
You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company’s financial statements, including comparing Lydex’s performance to its major competitors. The company’s financial statements for the last two years are as follows: Lydex CompanyComparative Balance Sheet This Year Last Year Assets Current assets: Cash $ 890,000 $ 1,020,000 Marketable securities 0 300,000 Accounts receivable, net 2,420,000 1,520,000 Inventory 3,530,000 2,300,000 Prepaid expenses 240,000 180,000 Total current assets 7,080,000 5,320,000 Plant and equipment, net 9,380,000 8,980,000 Total assets $ 16,460,000 $ 14,300,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 3,960,000 $ 2,860,000 Note payable, 10% 3,620,000 3,020,000 Total liabilities 7,580,000 5,880,000 Stockholders' equity: Common stock, $70 par value…
Sheryl’s Shipping had sales last year of $18,000. The cost of goods sold was $8,100, general and administrative expenses were $2,600, interest expenses were $2,100, and depreciation was $2,600. The firm’s tax rate is 21%. What are earnings before interest and taxes? What is net income? What is cash flow from operations?
Plank’s Plants had net income of $10,000 on sales of $40,000 last year. The firm paid a dividend of $2,300. Total assets were $700,000, of which $350,000 was financed by debt. a. What is the firm’s sustainable growth rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. If the firm grows at its sustainable growth rate, how much debt will be issued next year? (Do not round intermediate calculations.) c. What would be the maximum possible growth rate if the firm did not issue any debt next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Income statements illustrate what revenues the firm collects, the expenses required to support revenues, and the firm's profitability over a specified period of time. While balance sheets are a "snapshot" of the firm's status on a specific date, income statements reflect performance over a period of time. Publicly held companies generate income statements every quarter (three months) and for their annual report. INCOME STATEMENT (Thousands of dollars) Net revenues - Cost of goods sold - Operating expenses - Research & development expense Operating costs excluding depreciation - Depreciation and amortization expense Operating income (EBIT) - Interest expense Taxable income - Taxes Net income - Preferred dividends Net income available to common shareholders Dividends Addition to retained earnings The gross margin for this fictional company is: O 14.7% O 9.2% 18.2% 60.3% O 33.3% $ $ On the income statement, interest expense is $ Wages are considered a(n) $ $ In this example, the firm pays…
Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable. Make the following assumptions: current year's sales are $55,750,000; current year's cost of goods sold is $25,350,000; sales are expected to rise by 25%, The firm's investment in accounts receivable in the current year is $12,600,000. The firm's marginal tax rate is 35%. What is the projection for next year's accounts receivable? $10,320,000 $11,345,000 O $15,750,000 $8,772,000
(Using common-size financial statements) The S&H Construction Company expects to have total sales next year totaling $14,600,000. In addition, the firm pays taxes at 35 percent and will owe $294,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 63 percent of sales and operating expenses will total 27 percent. What is your estimate of the firm's net income (after taxes) for the coming year? Complete the pro-forma income statement below: (Round to the nearest dollar.) Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expense Earnings before taxes Taxes Net income $ $ $ $ $ C
The S&H construction company expects to have total sales next year totaling $15,300. In addition, the firm pays taxes at 35 percent and will owe $280,000 in interest expense. Based on last year’s operations the firm’s management predicts that its cost of goods sold will be 57 percent of sales and operating expenses will total 32 percent. What is your estimate of firm’s net income after taxes for the coming year? Complete the forma income statement below Round to the nearest dollar Pro-forma income statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expenses Earnings before taxes Taxes Net income
(Using common-size financial statements) The S&H Construction Company expects to have total sales next year totaling $14,500,000. In addition, the firm pays taxes at 35 percent and will owe $306,000 in interest expense. Based on last year's operations the firm's management predicts that its cost of goods sold will be 60 percent of sales and operating expenses will total 26 percent. What is your estimate of the firm's net income (after taxes) for the coming year? Pro-Forma Income Statement Sales Cost of goods sold Gross profit Operating expenses Net operating income Interest expense Earnings before taxes Taxes Net income $ $ $ $ $
For a firm facing a marginal income tax rate of 35%, what is the after-tax cash flow effect of: (a) a $1,900 increase in contribution margin during the year, and (b) a $800 increase in cash operating expenses? (Do not round intermediate calculations.) (a) Effect on after-tax cash flow to contribution margin (b) Effect on after-tax cash flow to cash operating expenses
you have developed the following pro forma income statement for your? corporation: it represents the most recent? year’s operations, which ended yesterday. a.if sales should increase by 25 ?percent, by what percent would earnings before interest and taxes and net income? increase? b.if sales should decrease by 25 ?percent, by what percent would earnings before interest and taxes and net income? decrease? q c.if the firm were to reduce its reliance on debt financing such that interest expense were cut in? half, how would this affect your answers to parts a and b?? sales $ 45,750,000 variable costs -22,800,000 revenue before fixed costs $ 22,950,000 fixed costs -9,200,000 ebit $ 13,750,000 interest expense -1,350,000 earnings before taxes $ 12,400,000 taxes (50%) -6,200,000 net income $ 6,200,000

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