Hydro Systems Engineering Associates, Inc., provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 15 percent, and its annual fixed expenses are $245,000. The firm’s income-tax rate is 30 percent. a. Calculate the firm’s break-even volume of service revenue. b. How much before-tax income must the firm earn to make an after-tax net income of $138,000? c. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $138,000? d. Suppose the firm’s income-tax rate changes to 20 percent. What will happen to the break-even level of consulting service revenue?
Hydro Systems Engineering Associates, Inc., provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 15 percent, and its annual fixed expenses are $245,000. The firm’s income-tax rate is 30 percent. a. Calculate the firm’s break-even volume of service revenue. b. How much before-tax income must the firm earn to make an after-tax net income of $138,000? c. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $138,000? d. Suppose the firm’s income-tax rate changes to 20 percent. What will happen to the break-even level of consulting service revenue?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hydro Systems Engineering Associates, Inc., provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 15 percent, and its annual fixed expenses are $245,000. The firm’s income-tax rate is 30 percent.
a. Calculate the firm’s break-even volume of service revenue.
b. How much before-tax income must the firm earn to make an after-tax net income of $138,000?
c. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $138,000?
d. Suppose the firm’s income-tax rate changes to 20 percent. What will happen to the break-even level of consulting service revenue?
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