Unit sales are expected to reach 30,000 per year, the price per unit is expected to be $80, variable costs are $40 per unit and fixed costs are $80,000 per year. The company pays $250,000 in interest per year. What is the degree of total leverage at the expected levels? Using the degree of total leverage, what is the expected percentage change in earnings per share (EPS) if sales turn out to be 16% lower than expected?

Unit sales are expected to reach 30,000 per year, the price per unit is expected to be $80, variable costs are $40 per unit and fixed costs are $80,000 per year. The company pays $250,000 in interest per year. What is the degree of total leverage at the expected levels? Using the degree of total leverage, what is the expected percentage change in earnings per share (EPS) if sales turn out to be 16% lower than expected?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Your company has a 34% tax rate and has $510 million in assets, currently financed entirely with equity. Equity is worth $41.00 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of State .25 .55 .20 Expect EBIT in State $60 million $110 million $180 million The firm is considering switching to a 15-percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
Company has expected earnings of $4.8 per share for next year. The firm's ROE is 16%, and its earnings retention ratio is 55%. If the firm's market capitalization rate is 12%, what is the present value of its growth opportunities?
Manshuk
Enrich, Inc., has expected earnings of $4 per share for next year. The firm's ROE is 16%, and its earnings retention ratio is 60%. If the firm's market capitalization rate is 12%, what is the present value of its growth opportunities (PVGO)? $28.88 $38.25 O $33.34 $66.67
Net Income for Company A is $200,000 in 2014, $300,000 in 2015, $400,000 in 2016, $500,000 in 2017, and $600,000 in 2018. The expected growth for all years after 2018 is 5%, the 90-Day T-Bill Rate is 20%, and the appropriate percentage above risk-free rate is 12%. Using this information, what is the reasonable value for Company A based on its future income stream for 2014 to 2018? A. 1,394,267.03 B. 4,394,267.03 A or B?