case3_05

case3_05 - 5.Statsitical Analysis 6.Additional Material...

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Unformatted text preview: 5.Statsitical Analysis 6.Additional Material "Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful". (Warren Buffet-famous investor) 5.Statsitical Analysis 6.Additional Material Case 3 Optimal Operating and Financial Leverage Fit Trainer Company Dehnadi, Z. Sprengers, Rutger AGENDA: 1 Introduction Business Risk Operating lev. EBIT &ROI Opt.debt level WACC TIE DSCR Sensitivity analysis Unscertainty Conclusion Introduction: Overview 2 George Pinkers Mary Schultz Frank Collins Introduction Business Risk Operating lev. EBIT &ROI Opt.debt level WACC TIE DSCR Sens. analysis Uncertainty Conclusion Business Risk 3 Introduction Business Risk Operating lev. EBIT &ROI Opt.debt level WACC TIE DSCR Sens. analysis Uncertainty Conclusion 1. Demand instability & the inherent cyclical 2. Tax rate(+/-25%) 3. Labour costs(+/- 5-20%) 4. Shares price 5. Operating leverage Q: The external business risk factors with which Fit Trainer Company must contend . Operating leverage 4 Introduction Business Risk Operating lev. EBIT &ROI Opt.debt level WACC TIE DSCR Sens. analysis Uncertainty Conclusion Q: Discuss the principles of operating leverage as they relate to production plans A and B Operating leverage is the change in EBIT caused by a change in quantity sold. The higher proportion of fixed costs the greater the operating leverage. 5 Introduction Business Risk Operating lev . EBIT &ROI Opt.debt level WACC TIE DSCR Sens. analysis Uncertainty Conclusion Higher operating leverage small sales decline causes a larger EBIT decline. higher business risk Sales $ Rev. TC F Q BE Sales $ Rev. TC F Q BE EBIT } Plan A Plan B Which plan should we choose? Operating leverage EBIT & ROI 6 Introduction Business Risk Operating lev. EBIT &ROI Opt.debt level WACC TIE DSCR Sens. analysis Uncertainty Conclusion Q: Calculate the expected EBIT and ROI under both plans and the levels of risk associated with each plan. Table 1 Plan A Scenario Probab ility Unit sales Dollar sales Operating Costs EBIT NOPAT ROI Pessimistic 25% 11,300 Most likely 50% 28,900 40,460,000 36,835.000 3,625,000 2,175,000 0.1726 Optimistic 25% 46,300 64,820,000 56,845.000 7,975,000 4,785,000 0.3798 Expectet 28,850 40,390,000 36.777,500 3,612.500 2,167,500 0.1720 St. Dev. 3,093.617 0.1473 Coefficient of variation 0.8564 0.8564 US * Sales Price FC+ Unit Sales * VC NOPAD/CAPITAL (Sales Costs)*(1-T) EBIT/Inital Invesment Sales-Costs FC+ Unit Sales*VC Sales-Costs EBIT/In. In. EBIT & ROI 7 Introduction Business Risk Operating lev....
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This note was uploaded on 11/16/2009 for the course F 3033 taught by Professor Hh during the Spring '09 term at Maastricht.

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case3_05 - 5.Statsitical Analysis 6.Additional Material...

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