IE 654 HW#4 Ch.5.pdf - Fall 18 Homework 4 Chapter 5 Financial Leverage Ahmed Alamoudi 1700743 IE 654 Financial Management Prof Seraj Abed Eng Eyad Moria

IE 654 HW#4 Ch.5.pdf - Fall 18 Homework 4 Chapter 5...

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Fall 18 October 16, 2017 Prof. Seraj Abed, Eng. Eyad Moria IE 654 Financial Management Homework# 4 Chapter# 5 Financial Leverage Ahmed Alamoudi 1700743
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3. Break-even analysis (LO2)Therapeutic Systems sells its products for $30 per unit. It has the following costs: Rent ............................................$230,000 Factory labor ..............................$12.50 per unit Executives under contract ..........$514,600 Raw material ..............................$2.90 per unit Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of $30, compute the break-even point.5-3. 7. Cash break-even analysis (LO2)Calloway Cab Company determines its break-even strictly on the basis of cash expenditures related to fixed costs. Its total fixed costs are $450,000, but 5 percent of this value is represented by depreciation. Its contribution margin (price minus variable cost) for each unit is $4.10. How many units does the firm need to sell to reach the cash break-even point? 5-7.
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11. Degree of leverage (LO2 and 5)The Harding Company manufactures skates. The company’s income statement for 2013 is as follows:HARDING COMPANYIncome StatementFor the Year Ended December 31, 2013Sales (10,500 skates @ $60 each) .................................$630,000 Less: Variable costs (10,500 skates at $25) ...................262,500 Fixed costs .................................................................200,000 Earnings before interest and taxes (EBIT) ....................167,500 Interest expense .............................................................62,500 Earnings before taxes (EBT) .........................................105,000 Income tax expense (30%) ............................................31,500 Earnings after taxes (EAT) ............................................$ 73,500 Given this income statement, compute the following: a.Degree of operating leverage. b.Degree of financial leverage. c.Degree of combined leverage. d.Break-even point in units (number of skates). 5-11.
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