Yor Inc. most recently sold 200,000 units at P12.00 each; its variable operating costs are P9.00 per unit, and its fixed operating costs are P400,000. Annual interest charges total P75,000, and the firm has 1,000 shares of P10 (annual dividend) preferred stock outstanding. It currently has 5,000 shares of common stock outstanding. Assume that the firm is subject to a 25% tax rate. Questions: At what level of sales (in units) would the firm break even on operations? (Round off final answer to the nearest peso) Calculate the firm’s earnings per share (EPS) in tabular form at the current level of sales. (Round off final answer to the nearest centavo or two decimal places) Calculate the firm’s earnings per share (EPS) in tabular form at a 220,000-unit sales level. (Round off final answer to the nearest centavo or two decimal places)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Yor Inc. most recently sold 200,000 units at P12.00 each; its variable operating costs are P9.00 per unit, and its fixed operating costs are P400,000. Annual interest charges total P75,000, and the firm has 1,000 shares of P10 (annual dividend)
Questions:
- At what level of sales (in units) would the firm break even on operations? (Round off final answer to the nearest peso)
- Calculate the firm’s earnings per share (EPS) in tabular form at the current level of sales. (Round off final answer to the nearest centavo or two decimal places)
- Calculate the firm’s earnings per share (EPS) in tabular form at a 220,000-unit sales level. (Round off final answer to the nearest centavo or two decimal places)
- Using the current P2,400,000 level of sales as a base, calculate the firm’s degree of operating leverage (DOL). (Round off final answer to the nearest two decimal places)
- Using the EBIT associated with the P2,400,000 level of sales as a base, calculate the firm’s degree of financial leverage (DFL). (Round off final answer to the nearest two decimal places)
- Use the degree of total leverage (DTL) concept to determine the effect (in percentage terms) on its earnings per share of a 50% increase in TOR’s sales from the P2,400,000 base level. (Answer these percentages in amounts with two decimal points e.g. xx.xx; do not denote percentage anymore; Use the exact DTL in computation)
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