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In: Finance

Problem 1: You have received the following projected income statement from an employee of your company:...

Problem 1:

You have received the following projected income statement from an employee of your company:

Sales                                                                              $86,000,000

-Variable costs                                                                       ?

- Fixed costs                                                                           ?

                                                                                       ---------------

EBIT                                                                                      ?   

- Interest                                                                            4,050,000      

                                                                                       ---------------

Profit before tax                                                             19,450,000            

- Tax                                                                                  5,450,000    

                                                                                       ---------------

Net Income                                                                     14,000,000

The employee (UW-Eau Claire grad) is confused on the meaning of variable versus fixed costs and could not finish the statement. I have assured the employee that you will not have any problem finishing this. The Company has a 54% variable cost percentage.

After completing the income statement, determine the following:

A. The breakeven point in dollars.

B. The DOL based on the above statement.

C. The DFL based on the above statement.

D. The DCL based on the above statement.

  1. If sales are up 4% from our expected level, what happens (percentage-wise) to EBIT, Net Income and EPS? Assume we have 250,000 shares.

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Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago
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