1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it...

1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it forecasts that next year’s sales will be $14,880,000. Its fixed costs have been and are expected to continue to be $6,400,000, and its variable cost ratio is 12.50%. Carter’s capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 9%, and 250,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%.

Given this data, complete the following sentences:

•	The percentage change in the company’s sales is _______________ (-8.4% / -7% / -6.3)
•	The percentage change in Carter’s EBIT is _______________ (-10.31% / -12.89% / -18.05%)
•	The degree of operating leverage (DOL) at $14,880,000 is _______________ (219.13 / 1.84 / 0.54) .

2.) There are several ways to use and interpret a firm’s DOL value. Consider the following statement and indicate whether it accurately reflects the meaning or an appropriate use of a firm’s DOL value.

At sales of $24 million, Firm X’s DOL is 1.75, and Firm C’s DOL is 6.50. Firm C exhibits a lower level of business risk than Firm X. (True / False)

Expert Solution

jeff jeffy answered 1 year ago

It is December 31. Last year, Campbell Construction had sales of $120,000,000, and it forecasts that...

It is December 31. Last year, Campbell Construction had sales of $120,000,000, and it forecasts that next year’s sales will be $114,000,000. Its fixed costs have been—and are expected to continue to be—$60,000,000, and its variable cost ratio is 21.00%. Campbell’s capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%. Given this data, complete...

Computing and interpreting the degree of operating leverage (DOL) It is December 31. Last year, Carter...

Computing and interpreting the degree of operating leverage (DOL) It is December 31. Last year, Carter Chemical Co. had sales of $8,000,000, and it forecasts that next year’s sales will be $7,600,000. Its fixed costs have been and are expected to continue to be $4,400,000, and its variable cost ratio is 12.50%. Carter’s capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 9%, and 250,000 shares of common equity. The company’s profits...

On December 31, 20X1, Carter Corporation had the following account balances related to credit sales and...

On December 31, 20X1, Carter Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries: Trade receivables $25,000 Allowance for doubtful accounts $200 (credit) Sales revenue (all credit sales) $400,000 Required: Present the necessary year-end adjusting entry related to uncollectible accounts for each of the following independent assumptions: A. An aging of accounts receivable is completed. It is estimated that $1,950 of the receivables outstanding at year-end will be uncollectible. B. It is...

Gomez Co. had the following transactions in the last two months of its year ended December...

Gomez Co. had the following transactions in the last two months of its year ended December 31st. Nov. 1st Paid $1,900 cash for future newspaper advertising. 1st Paid $2,460 cash for 12 months of insurance through October 31st of the next year. 30th Received $3,700 cash for future services to be provided to a customer. Dec. 1st Paid $6,000 cash for a consultant’s services to be received over the next three months. 15 Received $7,950 cash for future services to...

On December 31 of last year, Wolfson Corporation had in inventory 450 units of its product,...

On December 31 of last year, Wolfson Corporation had in inventory 450 units of its product, which cost $22 per unit to produce. During January, the company produced 850 units at a cost of $25 per unit. Assuming that Wolfson Corporation sold 800 units in January, what was the cost of goods sold? (Assume FIFO inventory accounting.)

Last year, Bad Tattoo Co. had additions to retained earnings of $4,780 on sales of $95,560....

Last year, Bad Tattoo Co. had additions to retained earnings of $4,780 on sales of $95,560. The company had costs of $75,720, dividends of $2,980, and interest expense of $2,040. If the tax rate was 34 percent, what the depreciation expense? $6,439 $13,285 $7,390 $7,760 $6,042

_______________________________________________________________________ JETER CORPORATION Income Statement For the Year Ended December 31, 2019 Sales.......................................................................................... $ 3,300,000 Co

_______________________________________________________________________ JETER CORPORATION Income Statement For the Year Ended December 31, 2019 Sales.......................................................................................... $ 3,300,000 Cost of goods sold.................................................................... 1,950,000 Gross profits....................................................................... 1,350,000 Selling and administrative expense.......................................... 650,000 Depreciation expense................................................................ 230,000 Operating income................................................................ 470,000 Interest expense........................................................................ 80,000 Earnings before taxes......................................................... 390,000 Taxes......................................................................................... 140,000 Earnings after taxes............................................................ 250,000 Preferred stock dividends............................................................ 10,000 Net Income Available to Common Shareholders..................... $ 240,000 Shares outstanding.................................................................. 150,000 Current Stock Price................................................................... $ 16.00 _______________________________________________________________________ _______________________________________________________________________...

Western Gas & Electric Co. (WG&E) had sales of $1,720,000 last year on fixed assets of...

Western Gas & Electric Co. (WG&E) had sales of $1,720,000 last year on fixed assets of $380,000. Given that WG&E’s fixed assets were being used at only 95% of capacity, then the firm’s fixed asset turnover ratio was ___ . How much sales could Western Gas & Electric Co. (WG&E) have supported with its current level of fixed assets? $1,629,473 $1,810,526 $2,172,631 $1,448,421 When you consider that WG&E’s fixed assets were being underused, what should be the firm’s target fixed...

1. (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands...

1. (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than its primary business, industrial chemicals), the firm's beta will decline from 1.1 to 0.9. However, consumer products have a somewhat lower profit margin, and this will cause Carter's growth rate in earnings and dividends to fall from 7 percent to 6 percent. Should management make the change? Assume the following: E[RM]= 10%; RF=7.5%; D0 =$2....

1. On December 31, Mars Co. had the following portfolio of stock investments with insignificant influence....

1. On December 31, Mars Co. had the following portfolio of stock investments with insignificant influence. Mars had no stock investments in prior periods. Stock Investments Cost Fair Value Apple stock $ 6,500 $ 8,600 Chipotle stock 3,300 1,800 Under Armour stock 12,800 14,300 Prepare the December 31 adjusting entry to report these investments at fair value. Record the year-end adjustment to fair value, if any. 2. Carlsville Company began operations in the current year and had no prior stock...

Question