BWP projects sales of 100,000 units next year at an average price of $50 per uni

Question

BWP projects sales of 100,000 units next year at an average price of $50 per unit. Variable costs are estimated at 40% of revenue, and fixed costs will be $2.4 million. BWP has $1 million in bonds outstanding on which it pays 7%, and its marginal tax rate is 36%. There are 100,000 shares of stock outstanding which trade at their book value of $30. Compute BWP's contribution, contribution margin, Net Income, DOL and EPS. Round the answers to two decimal places. Enter your Net income answer in whole dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2.

Explanation / Answer

Income Statement No of Shares 100000 Amount in Bonds 1000000 Interest 7% Particulars Amount in $ Sales (100000*50) 5000000 Less: Variable Cost (40%of Sales) 2000000 Contribution Margin 3000000 Less: Fixed Cost 2400000 Earning before Interest & Tax (EBIT) 600000 Less: Interest 70000 Earning before Tax (EBT) 530000 Less: Tax @36% 190800 Net Income 339200 DOL : EBIT/Sales (600000/5000000) 0.12 EPS: Net Income/No of shares (339200/100000) 0.3392

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