Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 12, Problem 2SP
a)
Summary Introduction
To determine: The corporation’s break-even point in sales dollars.
b)
Summary Introduction
To determine: The percentage increase in EBT and net income.
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(Break-even analysis) You have developed the income statement in the popup window, E, for the Hugo Boss Corporation. It represents the most recent year's operations, which
ended yesterday. Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:
a. What is the firm's break-even point in sales dollars?
b. If sales should increase by 25 percent, by what percent would earnings before taxes (and net income) increase?
a. What is the firm's break-even point in sales dollars?
$
(Round to the nearest dollar.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Sales
$50,582,615
Variable costs
(26,393,000)
Revenue before fixed costs
$24,189,615
Fixed costs
(10,036,000)
EBIT
$14,153,615
Interest expense
(1,334,177)
Earnings before taxes
$12,819,438
Taxes at 21%
(2,692,082)
Net income
$10,127,356
Print
Done
level of net income, what level of sales will the company have to achieve? Assume that Hebner's interest
CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. In order to achieve this
the company's sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000. The company's
Question 10
Hebner Housing Corporation has forecast the following numbers for this upcoming year:
Sales = $1,000,000.
Cost of goods sold = 600,000.
Interest expense = 100,000.
Net income = 180,000.
The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales That is if
pense
remains constant.
Question 11
Consider the following scenario:
Green Caterpillar Garden Supplies Inc.’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year.
1.
Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT).
2.
The company’s operating costs (excluding depreciation and amortization) remain at 60% of net sales, and its depreciation and amortization expenses remain constant from year to year.
3.
The company’s tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT).
4.
In Year 2, Green Caterpillar expects to pay $100,000 and $1,759,500 of preferred and common stock dividends, respectively.
A. Complete the Year 2 income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.
Green Caterpillar…
Chapter 12 Solutions
Foundations Of Finance
Ch. 12 - Prob. 1RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 1SPCh. 12 - Prob. 2SPCh. 12 - Prob. 3SPCh. 12 - Prob. 4SPCh. 12 - Prob. 5SPCh. 12 - (Capital structure theory) Match each of the...
Ch. 12 - (Capital structure theory) Which of the following...Ch. 12 - Prob. 8SPCh. 12 - Prob. 9SPCh. 12 - (Assessing leverage use) Financial data for three...Ch. 12 - Prob. 1.1MCCh. 12 - Prob. 1.2MCCh. 12 - Prob. 1.3MCCh. 12 - Prob. 1.4MCCh. 12 - Prob. 2.1MCCh. 12 - Prob. 2.2MCCh. 12 - Prob. 2.3MCCh. 12 - Prob. 3.1MCCh. 12 - Prob. 3.2MCCh. 12 - Prob. 3.3MC
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- Consider the following scenario: Green Caterpillar Garden Supplies Inc.'s Income statement reports data for its first year of operation. The firm's CEO would like sales to increase by 25% next year. 1. Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before Interest and taxes (EBIT). 2. The company's operating costs (excluding depreciation and amortization) remain at 60% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company's tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Green Caterpillar expects to pay $100,000 and $1,759,500 of preferred and common stock dividends, respectively. Complete the Year 2 Income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Net sales Less: Operating costs, except depreciation…arrow_forwardWhat is the pro forma net income expected to be? On these general accounting questionarrow_forwardWant to give you a correct answerarrow_forward
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