Assignment Financial Reporting & Analysis ch 9

# Assignment Financial Reporting & Analysis ch 9 -...

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1 PROBLEM 9-1 Degree of Financial Leverage = Earnings Before Interest and Tax Earnings Before Tax \$975,000 + \$70,000 = \$1,045,000 = 1.07 \$975,000 \$975,000 PROBLEM 9 - 2 a. Degree of Financial Leverage = Earnings Before Interest and Tax Earnings Before Tax = \$1,000,000 \$800,000 = 1.25 b. Prior earnings before interest and tax \$ 1,000,000 10% increase 100,000 Adjusted income before interest and tax \$ 1,100,000 Interest 200,000 Income before tax \$ 900,000 Tax (50% rate) 450,000 Net income 450,000 Earnings will increase by 12.5% to \$450,000 (\$400,000 x 112.5% = \$450,000) c. \$800,000 200,000

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2 600,000 300,000 \$300,000 This is a decline in profit of 25%, with a decline in earnings before interest and tax of 20%.
3 PROBLEM 9-13 a. 1. Degree of Financial Leverage = Earnings Before Interest and Tax Earnings Before Tax 2011: \$110,500 + \$9,500 = 1.09 \$110,500 2010: \$107,700 + \$6,600 = 1.06 \$107,700 2009: \$100,450 + \$6,800 = 1.07 \$100,450 2008: \$124,100 + \$6,900 = 1.06 \$124,100 2007: \$119,000 + \$7,000 = 1.06 \$119,000 2. Earnings Per Common Share 2011: Continuing operations \$ 2.67* Extraordinary gain .69 \$ 3.36 * Should be used in primary analysis. 2010: \$2.57

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4 2009: \$2.36 2008: \$3.23 2007: \$2.81 3. Price/Earnings Ratio = Market Price Per Share Fully Diluted Earnings Per Share 2011: \$24.00 = 8.99 \$2.67 2010: \$22.00 = 8.56 \$2.57 2009: \$21.00 = 8.90 \$2.36 2008: \$37.00 = 11.46 \$3.23 2007: \$29.00 = 10.32 \$2.81 4. Percentage of Earnings Retained = Net Income before nonrecurring items – All Dividends
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• Spring '14
• ChristopherK.Green
• P/E ratio, Earnings before Interest

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