Computation of income statement and break-even analysis

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Reference no: EM1313753

Camping USA Inc. has only been operating for 2 years in the outskirts of Albuquerque, New Mexico, and is a new manufacturer of a top-of-line camping tent. You are starting an internship as assistant to the chief financial officer of the company, and the owner and CEO, Tom Charles, he decided that this is the right time to know more about the business and financial risks his company must deal with. For this, the CEO has asked you to prepare an analysis to support him in new meeting with Tom Charles a week from today.

To make the required calculations, you have put together the following data regarding the co-structure of the company:

Output level	120,000 units
Operating assets	$6,000,000
Operating asset turnover	12 times
Return on operating assets	48%
Degree of operating leverage	10 times
Interest expense	%720,000
Tax rate	42%

The CEO has instructed you to first determine the break-even points in units of output for the company. He requires that you prepare supporting documents, which demonstrate how you arrive at your conclusion and can facilitates his review of your work. Accordingly, you are required to have the information needed to prepare an analytical income statement for the company to be presented to the CEO. In a format that is acceptable for a meeting discussion with the CEO, you also need to prepare answers to the following questions:

a. What is the firm's break-even point in sales dollars?

b. If sales should increase by 40 percent, by what percentage would EBT (earnings before taxes) and net income increase?

c. Prepare another income statement, this time to verify the calculations from part d.

Your firm needs to raise $10 million. Assume 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?

Reference no: EM1313753

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