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12-1.(Leverage analysis) You have developed the fo...




12-1.(Leverage analysis) You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent year?s operations, which ended yesterday. Sales $ 50,439,375 Variable costs (25,137,000) Revenue before fixed costs $ 25,302,375 Fixed costs (10,143,000) EBIT $ 15,159,375 Interest expense (1,488,375) Earnings before taxes $ 13,671,000 Taxes at 50% (6,835,500) Net income $ 6,835,500 Your supervisor in the controller?s office has just handed you a memorandum asking for written responses to the following questions: a. What is the firm?s break-even point in sales dollars? b. If sales should increase by 30 percent, by what percent would earnings before taxes (and net income) increase? 12-5.(Operating leverage) Rocky Mount Metals Company manufactures an assortment of wood-burning stoves. The average selling price for the various units is $500. The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually. a. What is the break-even point in units for the company? b. What is the dollar sales volume the firm must achieve to reach the break-even point? c. What is the degree of operating leverage for a production and sales level of 5,000 units for the firm? (Calculate to three decimal places.) d. What will be the projected effect on earnings before interest and taxes if the firm?s sales level 13-1. (Dividend policies) Final earnings estimates for Chilean Health Spa & Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies: a. A stable dollar dividend targeted at 40 percent of earnings over a 5-year period b. A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20,000,000. The year-end extra dividend will equal 50 percent of profits exceeding $20,000,000. c. A constant dividend payout ratio of 40 percent YEAR PROFITS AFTER TAXES 1 $ 18,000,000 2 21,000,000 3 19,000,000 4 23,000,000 5 25,000,000 13-2. (Flotation costs and issue size) Your firm needs to raise $10 million. Assuming that flotation costs are expected to be $15 per share, and that the market price of the stock is $120, how many shares would have to be issued? What is the dollar size of the issue? Remember to complete all parts of the problems and report the results of your analysis. Do not forget to show the necessary steps and explain how your attained that outcome.


Paper#11017 | Written in 18-Jul-2015

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