Reference no: EM133027810
Questions -
Q1. Degree of operating leverage Gray Productos has fixed operating costs of $ 380,000, variable operating costs of $ 16 per unit, and a selling price of $ 63.50 per unit.
a) Calculate the operating equilibrium point in units.
b) Determine the EBIT of the company at 9,000, 10,000 and 11,000 units, respectively.
c) With 10,000 units as the base, are the percentage changes in units sold and in EBIT, as sales move from the base level to the other levels of sales indicated in part b)?
d) Use the percentages calculated in part c) to determine the degree of operating leverage (GAO).
e) Use the formula for the degree of operating leverage to determine the GAO at 10,000 units.
Q2. Degree of operating leverage: Chart Levin Corporation has fixed operating costs of $ 72,000, variable operating costs of $ 6.75 per unit, and a selling price of $ 9.75 per unit.
a) Calculate the operating equilibrium point in units.
b) Determine the degree of operating leverage (GAO) for the following levels of unit sales: 25,000, 30,000 and 40,000. Use the formula presented in the chapter.
c) Calculate the degree of operating leverage at 24,000 units.
Q3. GPA Calculations Southland Industries has outstanding $ 60,000 of bonds that pay 16% annual interest, 1,500 preferred shares that pay an annual dividend of $ 5 each, and 4,000 common shares. Assuming the business has a tax rate of 40%, calculate earnings per share (EPS) for the following levels of EBIT:
a) $ 24,600
b) $ 30,600
c) $ 35,000
Q4. Degree of financial leverage Northwestern Savings and Loan has a current capital structure comprised of $ 250,000 of debt at 16% annual interest and 2,000 common shares. The company pays taxes at the rate of 40%.
a) With EBIT values ??of $ 80,000 and $ 120,000, determine earnings per share (GPA) related.
b) Take the $ 80,000 of EBIT as a base and calculate the degree of financial leverage (GAF).
c) Work again with items a) and b) assuming that the company has $ 100,000 of debt at 16% annual interest and 3,000 common shares.
Q5. Financial Leverage Max Small has outstanding school loans that require a monthly payment of $ 1,000. You need to buy a new car to work and you estimate that this will add $ 350 a month to your monthly obligations. Max will have $ 3,000 available after paying all his monthly living (operating) expenses. This amount can be increased or decreased by 10%.
a) To evaluate the potential effect of the additional loan on your financial leverage, calculate the GAF in tabular form for both the proposed and current monthly payments, considering the availability of $ 3,000 from Max as the base level and the change of 10%.
b) Will Max be able to afford the additional loan payment?
c) Should Max assume the payment of the additional loan?