EBK FINANCIAL ANALYSIS WITH MICROSOFT E
8th Edition
ISBN: 9781337515528
Author: Mayes
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 7, Problem 1P
a.
Summary Introduction
To prepare: The income statement and determine if it is profitable.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
a.
Expert Solution
Explanation of Solution
The income statement for the company has been prepared:
Working note: Preparation of income statement and computation of net income has been shown below:
b.
Summary Introduction
To compute: Operating breakeven point units and dollars.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
b.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns
The operating break even for the company has been computed:
Working note: The computation of operating break even for the company has been computed has been shown below:
c.
Summary Introduction
To compute: Operating breakeven point units with target profit.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
c.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.
The operating break even with target profit for the company has been computed:
Working note: The computation of operating break even with target profit for the company has been computed has been shown below:
d.
Summary Introduction
To compute: Selling price that would lead to operating breakeven point using goal seek.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
d.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.
Step 1: Enter all the details using the formulas
Working notes: Its computation using formulas has been shown below:
Step 2: Go to ‘data’ tab and click on ‘what-if analysis’ to select ‘goal seek’ function. Set the value of profit as 0 by changing the selling price. It has been shown below:
Step 3: Click on ‘OK’. The new selling price that would lead to operating profit would be computed.
e.
Summary Introduction
To compute: DOL, DFL and DCL.
Introduction: Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to compute the net income for a particular period.
e.
Expert Solution
Explanation of Solution
Breakeven point is the point at which the company neither earns profit nor incurs loss. It is the minimal sales required to cover variable as well as fixed costs.
Leverage is the degree of change in component on the other component. It can be divided into three categories i.e. degree of operating leverage (DOL), degree of financial leverage (DFL) and degree of combined leverage (DCL).
Working notes: Calculation for each leverage has been shown below:
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Meyerson’s Bakery is considering the addition of a new line of pies to its product offerings.
However, the following scenarios could be faced by this Bakery for the new line:
First scenario: It is expected that each pie will sell for $17 and the variable costs per pie will be $11. Total fixed operating costs are expected to be $25,000. Meyerson’s faces a marginal tax rate of 25%, will have interest expense associated with this line of $3,500, and expects to sell about 4,500 pies in the first year.
Second scenario: It is expected that each pie will sell for $15 and the variable costs per pie will be $9. Total fixed operating costs are expected to be $20,000. Meyerson’s faces a marginal tax rate of 35%, will have interest expense associated with this line of $3,000, and expects to sell about 4,000 pies in the first year.
1. Under the first scenario, How many pies would Meyerson’s need to sell in order to achieve EBIT of $20,000? (EBIT = Earnings Before Interest and Taxes).…
Meyerson's Bakery is considering the addition of a new line of pies to its
product offerings. It is expected that each pie will sell for $15 and the
variable costs per pie will be $9. Total fixed operating costs are expected
to be $25,000. Meyerson's faces a marginal tax rate of 35%, will have
interest expense associated with this line of $3,500, and expects to sell
about 4,200 pies in the first year.
a. Create an income statement for the pie line's first year. Is the line
expected to be profitable?
b. Calculate the operating break-even point in both units and dollars.
How many pies would Meyerson's need to sell in order to achieve
EBIT of $20,000?
C.
d. Use the Goal Seek tool to determine the selling price per pie that
would allow Meyerson's to break even in terms of its net income.
e. Calculate the DOL, DFL, and DCL for the new pie line.
Hyperion, Inc. currently sells its latest high-speed color printer, the Hyper 500, for $350. It plans to lower the price to $300 next year. Its cost of goods sold for the Hyper 500 is $200 per unit, and thi year's sales are expected to be 20,000 units.a) Suppose that if Hyperion drops the price to $300 immediatley, it can increase this year's sales by 25% to 25,000 units. What would be the incremental impact on this eyar's EBIT of such a price drop?b) Suppose that for each printer sold, Hyperion expects additional sales of $75 per year on ink cartridges for the next years, and Hyperion has a gross profit margin of 70% on ink cartridges. What is the incremntal impact on EBIT for the next three years of a priced drop this year?
Chapter 7 Solutions
EBK FINANCIAL ANALYSIS WITH MICROSOFT E
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