Repeat the Spuds and Suds Income Statement example from Chapter 7 with the following assumptions: price per unit and fixed costs are expected to increase by an average annual rate of inflation of 2%. Also assume that variable costs as a percent of sales will remain constant at 65%. Finally, suppose that Spuds and Suds is a firm in the early stage of business, and that unit sales are projected to grow at a rate of 20%, 15%, 10% and 5% for 2020-2024 respectively. a) Create an income statement using the assumptions explained above. (Analysis 4 pts) b) Calculate the operating break-even point in both units and dollars. (Analysis 4 pts) c) How many units would Spuds and Suds need to sell in order to achieve earnings, before interest and taxes of $900,000? (Identify and Access Needed Information 4 pts) d) Calculate the degree of operating, financial, and combined leverage for each year. (Use Information Effectively to Accomplish a Specific Purpose 4 pts) e) Create a chart that shows how the various leverage measures have changed over this five-year period. (Use Information Effectively to Accomplish a Specific Purpose 4 pts) f) Interpretation: please describe where you obtained information to develop analyses and interpret the results. Please include your written description in the "interpretation" tab. If you do
Repeat the Spuds and Suds Income Statement example from Chapter 7 with the following assumptions: price per unit and fixed costs are expected to increase by an average annual rate of inflation of 2%. Also assume that variable costs as a percent of sales will remain constant at 65%. Finally, suppose that Spuds and Suds is a firm in the early stage of business, and that unit sales are projected to grow at a rate of 20%, 15%, 10% and 5% for 2020-2024 respectively. a) Create an income statement using the assumptions explained above. (Analysis 4 pts) b) Calculate the operating break-even point in both units and dollars. (Analysis 4 pts) c) How many units would Spuds and Suds need to sell in order to achieve earnings, before interest and taxes of $900,000? (Identify and Access Needed Information 4 pts) d) Calculate the degree of operating, financial, and combined leverage for each year. (Use Information Effectively to Accomplish a Specific Purpose 4 pts) e) Create a chart that shows how the various leverage measures have changed over this five-year period. (Use Information Effectively to Accomplish a Specific Purpose 4 pts) f) Interpretation: please describe where you obtained information to develop analyses and interpret the results. Please include your written description in the "interpretation" tab. If you do
Chapter12: Corporate Valuation And Financial Planning
Section: Chapter Questions
Problem 2STP
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Transcribed Image Text:Repeat the Spuds and Suds Income Statement example from Chapter 7 with the following
assumptions: price per unit and fixed costs are expected to increase by an average annual rate of
inflation of 2%. Also assume that variable costs as a percent of sales will remain constant at 65%.
Finally, suppose that Spuds and Suds is a firm in the early stage of business, and that unit sales are
projected to grow at a rate of 20%, 15%, 10% and 5% for 2020-2024 respectively.
a) Create an income statement using the assumptions explained above. (Analysis 4 pts)
b) Calculate the operating break-even point in both units and dollars. (Analysis 4 pts)
c) How many units would Spuds and Suds need to sell in order to achieve earnings, before interest
and taxes of $900,000? (Identify and Access Needed Information 4 pts)
d) Calculate the degree of operating, financial, and combined leverage for each year. (Use
Information Effectively to Accomplish a Specific Purpose 4 pts)
e) Create a chart that shows how the various leverage measures have changed over this five-year
period. (Use Information Effectively to Accomplish a Specific Purpose 4 pts)
f) Interpretation: please describe where you obtained information to develop analyses and
interpret the results. Please include your written description in the "interpretation" tab. If you do
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