In each part summarize your analysis in a concise management statement not to ex

Question

In each part summarize your analysis in a concise management statement not to exceed 100 words each.

2. Camping USA Inc. has only operating for 2years in the outskirts of Albuquerque, New Mexico, and is a new manufacturing of a top-of-line camping tent. You are starting an internship as assistant to the chief financial officer of the company, and the owner CEO, Tom Charles, has decided that this is the right time to know more about the business and financial risks his company must deal with. For this, the CEO has asked you to prepare an analysis to support him in his next meeting with Tom Charles a week from today.

To make the required calculations, you have put together the following data the following data regarding the cost structure of the company:




Output level 120,000 units
Operating assests $6,000,000
Operating asset turnover 12 times
Return on operating assets 48%
Degree of operating leverage 10 times
Interset expense $720,00 I f sales should increase by 40 percent, by what percentage would EBT ( earnings
Tax rate 42%

The CEO has instructed you to first determine the break-even point in units of output for the company. He rquired that you prepare supporting documents, which demonstrate how you arrived at your conclusion and can facilitate his review of your work. Accordingly, you are required to have the information needed to prepare an analytical income statement for the company to be presented to the CEO. In a format that is acceptable for a meeting discussion with the CEO, YOU ALSO NEED TO PREPARE ANSWERS TO THE FOLLOWING QUESTIONS.
A. WHAT IS THE FORM'S BREAK-EVEN POINT IN SALES DOLLARS?
B.If sales should increase by 40 percent, by what percentage would EBT ( EARNINGS BEFORE TAXES) ANS NET INCOME INCREASE?
C. Prepare another income statement, this time to verify the calculations drom part d


13-2 ( flotation costs and issue size) Your firm needs to raise $10 million. Assuming that flotation costs are expected to be $15 per share, and that the market price of the stock is $120, how many shares would have to be issued? What is the dollar size of the issue?

Explanation / Answer

A. Out put Units 120000 Assets 6000000 Sales Sales / Assets = 12 Sales / 6000000 = 12 Sales $72,000,000 Net Income Net Income / Assets = 48% Net Income / 6000000 = 48% = 6000000*48% Net Income $2,880,000 Degree of operating leverage = Contribution Margin / Net operating income Contribution Margin / 2880000 = 10 = 2880000*10 Contribution Margin $28,800,000 Contribution Margin = Sales - Variable Cost 28800000 = 72000000-Variable Cost Variable cost $43,200,000 Contribution Margin = Fixed Costs + Profits 28800000 = Fixed Costs + 2880000 Fixed Cost = 28800000-2880000 $25,920,000 Break Even Point = Fixed Cost / P.V Ratio = 25920000 / 48% $54,000,000 Break Even Units = 54000000/120000 $450 B. Actual 100% Increased 40% Total 140% Sales $72,000,000 28800000 $100,800,000 Variable Cost $43,200,000 17280000 $60,480,000 Contribution $28,800,000 $40,320,000 Fixed Cost $25,920,000 $25,920,000 Operating Income (EBT) $2,880,000 $14,400,000 Increased EBT $11,520,000 C. Income Statement Sales Revenur $100,800,000 Less: Cost of Goods Sold Variable Cost $60,480,000 Gross profit $40,320,000 Less: Operating Expences Operatin Expences $25,920,000 Interest Expenses $720,000 Total Operating Expenses $26,640,000 Operating Income $13,680,000 Less: Tax 42% $5,745,600 Net Income $7,934,400 13-2 Required Share Capital $10,000,000 Share Price $120 Total shares has to issue = 10000000 / 120 = 83333.33 Total Share Capital in $ = 83333.33 * 120 $10,000,000 Flotation Cost per share $15 Total Flotation costs = 83333.33*15 $1,250,000 Note: In first year Operating profit treated as Net Income, because there is no any tax rate and athor expences mentioned for firs year. Thank you.... Out put Units 120000 Assets 6000000 Sales Sales / Assets = 12 Sales / 6000000 = 12 Sales $72,000,000 Net Income Net Income / Assets = 48% Net Income / 6000000 = 48% = 6000000*48% Net Income $2,880,000 Degree of operating leverage = Contribution Margin / Net operating income Contribution Margin / 2880000 = 10 = 2880000*10 Contribution Margin $28,800,000 Contribution Margin = Sales - Variable Cost 28800000 = 72000000-Variable Cost Variable cost $43,200,000 Contribution Margin = Fixed Costs + Profits 28800000 = Fixed Costs + 2880000 Fixed Cost = 28800000-2880000 $25,920,000 Break Even Point = Fixed Cost / P.V Ratio = 25920000 / 48% $54,000,000 Break Even Units = 54000000/120000 $450

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