Module 6 Written Assignment - Noury Rmaida BME 213514-03...

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Noury Rmaida BME 213514-03 Module 6 Written Assignment EBIT (a) $24,600 (b) $30,600 (c) $35,000 Subtract Interest Expense $60,000 x 0.16 = $9,600 ($9,600) ($9,600) ($9,600) Earnings Before Taxes (EBT) $15,000 $21,000 $25,400 Subtract Taxes (EBT x Tax Rate of 40%) ($6,000) ($8,400) ($10,160) Earnings After Taxes (EAT) $9,000 $12,600 $15,240 Subtract Preferred Dividends (# Preferred Shares * Preferred Dividend Per Share) (1500*$5 = $7,500) ($7,500) ($7,500) ($7,500) Earnings Available to Common Shares (EATC) $1,500 $5,100 $7,740 EPS (EATC / Number of Common Shares) $0.38 $1.28 $1.94 (EATC / 4000)
a. Degree of Operating Leverage = Contribution/ Contribution-Fixed Cost 30000/24000 1.25 times Contribution =(Sales Price less Variable Cost ) Units ($2-$1.7)*100000 $30000 Contribution Less Fixed Cost =$30000-$6000 $24000 Degree Of financial Leverage Earnings Before Interest and Taxes / Profit before taxes = 24000/14000 = 1.7142 times Earnings before interest and taxes = Contribution Less Fixed Cost = $30000 - $6000 $24000 Profit Before Taxes = Earnings before interest and taxes Less Interest Cost = $24000-$10000 = $14000 Degree Of Total Leverage = Degree Of operating Leverage * Degree of financial leverage = 1.25*1.71 = 2.14 times b.

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