EBK FINANCIAL ANALYSIS WITH MICROSOFT E
8th Edition
ISBN: 9781337515528
Author: Mayes
Publisher: CENGAGE LEARNING - CONSIGNMENT
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 7, Problem 1P
a.
Summary Introduction
To prepare: The income statement and determine if it is profitable.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
a.
Expert Solution
Explanation of Solution
The income statement for the company has been prepared:
Working note: Preparation of income statement and computation of net income has been shown below:
b.
Summary Introduction
To compute: Operating breakeven point units and dollars.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
b.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns
The operating break even for the company has been computed:
Working note: The computation of operating break even for the company has been computed has been shown below:
c.
Summary Introduction
To compute: Operating breakeven point units with target profit.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
c.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.
The operating break even with target profit for the company has been computed:
Working note: The computation of operating break even with target profit for the company has been computed has been shown below:
d.
Summary Introduction
To compute: Selling price that would lead to operating breakeven point using goal seek.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
d.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.
Step 1: Enter all the details using the formulas
Working notes: Its computation using formulas has been shown below:
Step 2: Go to ‘data’ tab and click on ‘what-if analysis’ to select ‘goal seek’ function. Set the value of profit as 0 by changing the selling price. It has been shown below:
Step 3: Click on ‘OK’. The new selling price that would lead to operating profit would be computed.
e.
Summary Introduction
To compute: DOL, DFL and DCL.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
e.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.
Leverage is the degree of change in component on the other component. It can be divided into three categories i.e. degree of operating leverage (DOL), degree of financial leverage (DFL) and degree of combined leverage (DCL).
Working notes: Calculation for each leverage has been shown below:
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Meyerson's Bakery is considering the addition of a new line of pies to its
product offerings. It is expected that each pie will sell for $15 and the
variable costs per pie will be $9. Total fixed operating costs are expected
to be $25,000. Meyerson's faces a marginal tax rate of 35%, will have
interest expense associated with this line of $3,500, and expects to sell
about 4,200 pies in the first year.
a. Create an income statement for the pie line's first year. Is the line
expected to be profitable?
b. Calculate the operating break-even point in both units and dollars.
How many pies would Meyerson's need to sell in order to achieve
EBIT of $20,000?
C.
d. Use the Goal Seek tool to determine the selling price per pie that
would allow Meyerson's to break even in terms of its net income.
e. Calculate the DOL, DFL, and DCL for the new pie line.
Meyerson’s Bakery is considering the addition of a new line of pies to its product offerings.
However, the following scenarios could be faced by this Bakery for the new line:
First scenario: It is expected that each pie will sell for $17 and the variable costs per pie will be $11. Total fixed operating costs are expected to be $25,000. Meyerson’s faces a marginal tax rate of 25%, will have interest expense associated with this line of $3,500, and expects to sell about 4,500 pies in the first year.
Second scenario: It is expected that each pie will sell for $15 and the variable costs per pie will be $9. Total fixed operating costs are expected to be $20,000. Meyerson’s faces a marginal tax rate of 35%, will have interest expense associated with this line of $3,000, and expects to sell about 4,000 pies in the first year.
1. Under the first scenario, How many pies would Meyerson’s need to sell in order to achieve EBIT of $20,000? (EBIT = Earnings Before Interest and Taxes).…
Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. It plans to lower the price to $300 next year. Its cost of goods sold for the Hyper 500 is $200 per unit, and thi year's sales are expected to be 20,000 units.a) Suppose that if Hyperion drops the price to $300 immediatley, it can increase this year's sales by 25% to 25,000 units. What would be the incremental impact on this eyar's EBIT of such a price drop?b) Suppose that for each printer sold, Hyperion expects additional sales of $75 per year on ink cartridges for the next years, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremntal impact on EBIT for the next three years of a priced drop this year?
Chapter 7 Solutions
EBK FINANCIAL ANALYSIS WITH MICROSOFT E
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- APQ Company currently sells a piece of equipment for $150 per unit. It plans on lowering the price of the unit to $119 per unit. The cost of goods for each unit is consistent each year, at $52 per unit. The company expects to sell 100,000 units in the current year. Suppose that if APQ drops the price on the equipment immediately, it can increase sales over the next year by 30% to 130,000 units. Will this price decrease have a positive or negative impact on the company's EBIT? What will be the dollar value of the incremental impact of this price drop on the firm's EBIT? Will this have a positive or negative impact on the EBIT for the company? What will the dollar value of the incremental impact of the price drop be for the company? (Enter a negative for a loss, positive for a gain; round your answer to the nearest whole dollar.)arrow_forwardHyperion Inc., currently sells its latest high-speed color printer, the Hyper 500, for $350. Its cost of goods sold for the Hyper 500 is $200 per unit, and this year's sales (at the current price of $350) are expected to be 20,000 units. Hyperion plans to lower the price of the Hyper 500 to $300 one year from now. a. Suppose Hyperion considers dropping the price to $300 immediately, (rather than waiting one year). By doing so, it expects to increase this year's sales by 25% to 25,000 units. What would be the incremental impact on this year's EBIT of such a price drop? b. Suppose that for each printer sold, Hyperion expects additional sales of $75 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)?arrow_forwardThe ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC would like to realize a monthly profit of $50,000. How many units must they sell each month to realize this profit?arrow_forward
- The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. How many units must ABC sell each month to break even?arrow_forwardExon is selling a commercial heating unit at the price of $100.000 per unit. The variable cost of producing this unit is $75,000. Exon is considering offering credit tems to their customers which would allow payment to be delayed one month. Exon predicts that offering these terms will increase monthly sales from 50 units to 60 units. Exon does not expect the inreased production to change variable cost and Exon does not expect to charge a higher price. The appropiate discount rate is 1% a month The probability of payment that would make Exon indifferent between granting credit and the present policy isarrow_forwardRolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $27,300, and the company expects to sell 1,580 per year. The company currently sells 2,080 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,900 units per year. The old board retails for $23,200. Variable costs for both boards are 54 percent of sales, depreciation on the equipment to produce the new board will be $1,530,000 per year, and fixed costs are $1,430,000 per year. If the tax rate is 34 percent, what is the annual OCF for the project? (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.)arrow_forward
- Vijayarrow_forwardBaghibenarrow_forwardMilberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,000 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $40/dozen and have a variable cost of $15. The company expects to sell 100,000 boxes (of a dozen) balls. The fixed costs each year will be $11,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,000,000 and will be depreciated using the MACRS seven-year schedule. Assume that the equipment will be sold for 15% of its original cost. The new clubs will also require an increase in net working capital of $2,000,000 that will be returned at the end of the project. The tax rate is 25 percent. Information for computing the cost of capital is…arrow_forward
- Milberg Golf has decided to sell a new line of golf club. The clubs will sell for $1,000 per set and have a variable cost of 80% of revenues per set. The company has spent $450,000 for a marketing study that determined the company will sell 80,000 sets per year for seven years. The company also plans to offer a line of golf balls, which are expected to sell for $40/dozen and have a variable cost of $15. The company expects to sell 100,000 boxes (of a dozen) balls. The fixed costs each year will be $11,200,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,000,000 and will be depreciated using the MACRS seven-year schedule. Assume that the equipment will be sold for 15% of its original cost. The new clubs will also require an increase in net working capital of $2,000,000 that will be returned at the end of the project. The tax rate is 25 percent. Information for computing the cost of capital is…arrow_forwardHyperion Inc., currently sells its latest high-speed colour printer, the Hyper 500, for $354. Its cost of goods sold for the Hyper 500 is $202 per unit, and this year's sales (at the current price of $354) are expected to be 24,000 units. Hyperion plans to lower the price of the Hyper 500 to $303 one year from now. a. Suppose Hyperion considers dropping the price to $303 immediately, (rather than waiting one year). By doing so it expects to increase this year's sales by 30% to 31,200 units. What would be the incremental impact on this year's EBIT of such a price drop? b. Suppose that for each printer sold, Hyperion expects additional sales of $82 per year on ink cartridges for the three-year life of the printer, and Hyperion has a gross profit margin of 61% on ink cartridges. What is the incremental impact on EBIT for the next three years of dropping the price immediately (rather than waiting one year)? a. Suppose Hyperion considers dropping the price to $303 immediately, (rather than…arrow_forwardThe Chimes Clock Company sells a particular clock for $40. The variable costs are $23 per clock and the breakeven point is 230 clocks. The company expects to sell 280 clocks this year. If the company actually sells 430 clocks, what effect would the sale of additional 150 clocks have on operating income? Explain your answer. The sale of an additional 150 clocks would operating income by the amount of The total effect would amount toarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Operating Loss Carryback and Carryforward; Author: SuperfastCPA;https://www.youtube.com/watch?v=XiYhgzSGDAk;License: Standard Youtube License