4-3 part a only Find the break-even point if the selling price is $8 per unit, v

Question

4-3 part a only Find the break-even point if the selling price is $8 per unit, variable costs are $3 per unit, and fixed costs are $3,000. 4-1 Determine the degree of operating leverage at 800 units of output if the selling price is $8 per unit, variable costs are $3 per unit, and fixed costs are $3,000. 4-2 4-3 Sally's Legal Services, Inc. has 200 common shares outstanding. The company needs an additional $10,000 to buy a new machine. It is considering two alterna- tives to raise the money: (1) issue 100 new shares of common stock at $100 par value, and (2) issue bonds (or debt) at a 6 percent interest rate. With either the common stock or the debt alternative, it is expected that the firm's EBIT will be $2,400 and its tax rate is 50 percent. (a) Determine the earnings per share for each financing option. (b) Determine the EBIT indifference point between the two methods of financ- ing Determine the earnings per share at the EBIT indifference point. (c) 4-4 Samuel's Shirts, Inc. has started a new line of shirts with the symbol of a lab- rador retriever over the pocket. This new line will sell for $50 per shirt. The shirts are made in a new plant facility in Kenbridge, Virginia. Fixed costs are $60,000, variable costs are $30 per shirt, sales volume is 4,000 shirts, and interest expenses are $10,000. (a) What is the degree of operating leverage? (b) What is the degree of financial leverage?

Explanation / Answer

4-3 part a

EPS = Net income available to equity shareholders / weighted average no.of shares

1) Calculation of EPS when the company issue common stock

2) Calculation of EPS when the company issue Bonds

EBIT               2,400 Less: Interest                      -   Income Before Income Tax (EBT)               2,400 Less: Income Tax@50%               1,200 Net Income               1,200 Shares Outstanding (200+100) 300 EPS 4.00

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.