(a) 2,000 common shares at $50 net to the company. (b) $100,000 of 7 percent pre
ID: 2820161 • Letter: #
Question
(a) 2,000 common shares at $50 net to the company. (b) $100,000 of 7 percent preferred stock. (c) $100,000 of 6 percent bonds. Assuming an EBIT of $125,000 for each alternative, determine the earnings be share for each financing plan. Compute the EPS indifference points for the con mon stock vs. preferred stock plan and common stock vs.bond debt plan. Discus the results. The Wellsley Glass Company sells its glass by the square foot. The price per square foot is $5 and variable costs are $3 per square foot. Fixed costs are $60,000, and the company has $100,000 worth of debt with an interest rate of 10 percent. The company is operating at 50,000 square feet. 4-7 (a) What is the degree of operating leverage? (b) What is the degree of financial leverage? (c) What is the degree of combined leverage? Corner Creations by Dana, Inc. sells two products, A and B. The price per urit is $12 for A and $8 for B. The variable cost per unit is $6 for A and $4 for B Total fixed costs on both products are $80,000. Hint: Average price per unit = (12 + 8)/2. 4-8 (a) Calculate the break-even point if these two products are sold in the same (b) Calculate the break-even point if thev are sold in tho ratie soExplanation / Answer
DOL=%change in EBIT/%change in sales
=50/20=2.5
DFL=EBIT(EBIT-interest)=40,000/(40,000-10,000)=1.33
total leverage =DOL*DFL=2.5*1.33=3.33
Units 50,000 60,000 revenue 250000 300000 Variable 150000 180000 Fixed cost 60000 60000 Gross profit 40000 60000 EBIT 40000 60000 Interest 10000 10000 Change in EBIT 50.00% Change in sales 20.00% Degree of operating leverage 2.50 Degree of financial leverage 1.333333 Total leverage 3.33Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.