Company TechGear Ltd. is a technology company that manufactures and sells smartphones. They are currently analyzing their financial structure to understand how changes in sales and financing can impact their profitability and risk calculating the leverage position. The CFO of TechGear obtained the following information for the calculation: Sales: Fixed Costs: Variable Costs per Smartphone: Selling Price per Smartphone: Interest Expense: Total Common Shares Outstanding: Total Preferred Shares Outstanding: Preferred Dividend Per Share: Tax Rate 50,000 units BDT 80,000,000 BDT 15,000 BDT 20,000 BDT 20,000,000 1,000,000 600,000 BDT 10 40% a. Calculate the Degree of Operating Leverage, Degree of Financial Leverage, and Degree of Total Leverage for the company. b. What would happen to the company's leverage positions if its existing mobile phone sales drop by 20% due to a new competitor's entry into the smartphone business? c. Compare and comment on the riskiness of the company under two scenarios in (a) and (b). Briefly explain how the inclusion of fixed costs affects a company's risk and profitability under the above scenarios.

Company TechGear Ltd. is a technology company that manufactures and sells smartphones. They are currently analyzing their financial structure to understand how changes in sales and financing can impact their profitability and risk calculating the leverage position. The CFO of TechGear obtained the following information for the calculation: Sales: Fixed Costs: Variable Costs per Smartphone: Selling Price per Smartphone: Interest Expense: Total Common Shares Outstanding: Total Preferred Shares Outstanding: Preferred Dividend Per Share: Tax Rate 50,000 units BDT 80,000,000 BDT 15,000 BDT 20,000 BDT 20,000,000 1,000,000 600,000 BDT 10 40% a. Calculate the Degree of Operating Leverage, Degree of Financial Leverage, and Degree of Total Leverage for the company. b. What would happen to the company's leverage positions if its existing mobile phone sales drop by 20% due to a new competitor's entry into the smartphone business? c. Compare and comment on the riskiness of the company under two scenarios in (a) and (b). Briefly explain how the inclusion of fixed costs affects a company's risk and profitability under the above scenarios.

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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am. 128.
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REQUIRED: • Vertical Analysis • Financial Ratio
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