Part A Quantitative Problems Suppose QuickCharge Corporat.docx - Part A Quantitative Problems Suppose QuickCharge Corporation manufactures phone

# Part A Quantitative Problems Suppose QuickCharge Corporat.docx

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Part A: Quantitative Problems Suppose QuickCharge Corporation manufactures phone chargers. They sell their chargers for \$20. Their fixed operating costs are \$100,000 and their variable operating costs are \$10 per charger. Currently they are selling 30,000 chargers per year. What is QuickCharge’s EBIT (earnings before interest and taxes) at current sales of 30,000? What is QuickCharge’s breakeven point? Calculate the EBIT if QuickCharge’s sales increase 50% to 45,000 chargers. What is the percent of change in EBIT under this increase in sales? Also, calculate the EBIT if the company's sales decrease 50% to 15,000 chargers. What is the percent of change in EBIT under this decrease in sales? What is QuickCharge’s degree of operating leverage? Based on your computation, what does its operating leverage say about QuickCharge’s business risk? The StayDry Umbrella Corporation will have an EBIT of \$100,000 if there is a normal amount of rain this year. But if
there is a drought, they will have an EBIT of only \$50,000. The interest rate on debt is 10%, and the tax rate is 35%. The company does not pay any preferred dividends.

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• Fall '16
• Christopher L. Litten, MA, Ph.D.

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