Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are forecast to be $4,250,000. The firm's total asset is $8,750,000 with debt-asset ratio of 40%. The firm pays 12% interest on the debt and has 100,000 common stocks. The firm is subjected to corporate tax rate of 28%. How much is the fixed cost for the operation (assuming 25% target operating profit margin is achieved). What is the breakeven point in dollars for the firm? What is the degree of operating leverage (DOL)? What is the degree of combined/total leverage (DCL/DTL)? (To Be Solve) What will be its earnings per share if average annual sales drop by 20%?
Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are forecast to be $4,250,000. The firm's total asset is $8,750,000 with debt-asset ratio of 40%. The firm pays 12% interest on the debt and has 100,000 common stocks. The firm is subjected to corporate tax rate of 28%. How much is the fixed cost for the operation (assuming 25% target operating profit margin is achieved). What is the breakeven point in dollars for the firm? What is the degree of operating leverage (DOL)? What is the degree of combined/total leverage (DCL/DTL)? (To Be Solve) What will be its earnings per share if average annual sales drop by 20%?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Sam Holdings is planning to open a new wholesaling operation. The target operating profit margin is 25%. The unit contribution margin will be 40% of sales. Average annual sales are
- How much is the fixed cost for the operation (assuming 25% target operating profit margin is achieved).
- What is the breakeven point in dollars for the firm?
- What is the degree of operating leverage (DOL)?
- What is the degree of combined/total leverage (DCL/DTL)? (To Be Solve)
- What will be its earnings per share if average annual sales drop by 20%?
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