L8-ch15-HO - 1. Emma Corporation has $1,500,000 debt with...

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1. Emma Corporation has $1,500,000 debt with 12% interest and has $480,000 preferred equity with 15% annual dividend. The company was able to sell 50,000 units of its product at $80 per unit in the current year. Contribution margin ratio is 30% and all costs of goods sold are variable. In addition, if company’s sale changes by 1% from its current level, its EPS will change by 4%. (Company is in 40% tax bracket). a. If the firm’s current fixed operating cost is $600,000, what are the firm degree of operating leverage and financial leverage? b. How much addition could the firm make to its fixed operating cost if it can reduce its variable cost per unit by 20% and wants to keep the break- even point in units unchanged from the current one? 2. Use the following information to answer the given questions: Current assets = $50,000 Fixed asset turnover = 4 times Total variable costs = costs of goods sold Operation profit margin = 20% of sales Interest = $10,000 per year # of units sold = 5,000 units
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L8-ch15-HO - 1. Emma Corporation has $1,500,000 debt with...

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