Question

Aruz Berhad sells its product at RM45 per unit. Fixed cost per year is RM220,000 while variable cost is RM15 per unit. The firm has debt capital of RM450,000 and its interest rate is 7%. Firm tax rate is 30% and the total number of shares issued is 300,000 units.

You are required to:

- Calculate earnings before interest and tax (EBIT) and earnings per share (EPS) at total sales of 15,000 units.
- Calculate the degree of financial leverage at sales level of 15,000 units.

Answer #1

a) Calculation of EBIT at 15,000 units of sales :

Particulars | Calculation | Amount |

Sales (A) | 15,000*45 | 675,000 |

(-) Variable cost (B) | 15,000*15 | 225,000 |

(-) Fixed costs (C) | 220,000 | |

EBIT (D) (A-B-C) | 230,000 | |

Interest (E) | 450,000*7% | 31,500 |

EBT (F) (D-E) | 198,500 | |

Tax @30% (G) | 198,500*30% | 59,550 |

Net Income (H) (F-G) | 138,950 |

EBIT = 198,500

EPS = Net income/No.of shares

No.of shares = 300,000

EPS = 138,950/300,000

= 0.46

b) Degree of financial leverage at 15,000 units:

Financial Leverage = EBIT/EBT

= 230,000/198,500

= 1.16

Firm A has fixed cost of $30,000; variable cost of $31.50 per
unit; selling price of 2.50 per unit.
Firm B sells at 2.50 per unit but has $60,000 in fixed costs and
variable cost of $1.00 per unit. If both firms have $500,000 in
debt at 10 percent; what will be the degree of total leverage at
90,000 units; at 110,000 units of output.

OceanGate sells external hard drives for $300 each. Its total
fixed costs are $30 million, and its variable costs per unit are
$240. The corporate tax rate is 30%. If the economy is strong, the
firm will sell 6 million drives, but if there is a recession, it
will sell only half as many. a. What is the firm's degree of
operating leverage (defined as the ratio of the percent change in
EBIT to the percent change in sales) in...

OceanGate sells external hard drives for $350 each. Its total
fixed costs are $30 million, and its variable costs per unit are
$290. The corporate tax rate is 30%. If the economy is strong, the
firm will sell 4 million drives, but if there is a recession, it
will sell only half as many. a. What is the firm's degree of
operating leverage (defined as the ratio of the percent change in
EBIT to the percent change in sales) in...

3. A firm’s product price is $50, and the firm sold 12,500
units. The variable cost is $29.60 per unit, and fixed operating
costs are $200,000. Earnings before Interest and Taxes are $55,000.
Earnings per Share are $1.38. Fixed interest expense is $10,000 per
year, and the tax rate is 21%.
a. Compute the Degree of Operating Leverage. (5 points)
b. Compute the Degree of Financial Leverage. (5 points)
c. Compute the Degree of Total Leverage. (5 points)
d. A...

Berkut company's variable cost per unit was $25 and a
total fixed cost was $300,000. Assuming the company sells its
product for $50 per unit, what is its margin of safety if sales
total $800,000
a. 16,000 units
b. 25%
c. 12000 units
d. 1000 units

A
product sells for $170 per unit, and its variable costs per unit
are $100. The fixed costs are $540,000. If the firm wants to earn
$40,000 after tax income (assume a 15% tax rate), how many units
must be sold? After, prove the amount of units by plugging it back
in to find the $40,000 (pre and post 15% tax rate).

Preston Milled products currently sells a product with a
variable cost per unit of $21.50 and a unit selling price of
$39.50. At the present time, the firm only sells on a cash basis
with monthly sales of 320 units. The monthly interest rate is 1.2
percent. What is the switch break-even point if the firm switched
to a net 30 credit policy? Assume the selling price per unit and
the variable costs per unit remain constant.
335 units
329...

Debt and financial risk Tower Interiors has
made the forecast of sales shown in the following table.
Sales Probability
$200,000 0.20
$300,000 0.60
$400,000 0.20
The firm has fixed operating costs of $75,000 and variable
operating costs equal to 70% of the sales level. The company pays
$12,000 in interest per period. The tax rate is 40%.
a. Compute the earnings before interest and taxes (EBIT) for
each level of sales.
b. Compute the earnings per share (EPS) for each...

Firm R has sales of 105,000 units at $2.02 per unit, variable
operating costs of $1.71 per unit, and fixed operating costs of
$6,020. Interest is $10,130 per year. Firm W has sales of 105,000
units at $2.57 per unit, variable operating costs of $1.01 per
unit, and fixed operating costs of $62,800. Interest is $17,100 per
year. Assume that both firms are in the 40% tax bracket.
a. Compute the degree of operating, financial, and total
leverage for firm...

A company sells Product X for $30 per unit. The Direct Material
Cost, Direct labor cost, and Variable MFO costs total $21 per unit.
Fixed costs to product the product are $135,000.
How many units of Product X must the company sell in order to
break even?
What is the contribution margin ratio for product X?
How many units of Product X must be sold in order for the
company to earn a $50,000 profit?
If the company was selling...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 13 minutes ago

asked 33 minutes ago

asked 36 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago