Breakeven comparisonsAlgebraic

Given the price and cost data shown in the accompanying table

Firm	F		G		H
Sale price per unit	$19.26		$16.28		$26.66
Variable operating cost per unit	6.66		13.78		11.87
Fixed operating cost	42,000		28,000		88,000

a. What is the operating breakeven point in units for each firm?

b. How would you rank these firms in terms of their risk?

Breakeven analysis Barry Carter is considering opening a used-book store. He wants to estimate the number of books he must sell to break even. The books will be sold for

$13.84 each, variable operating costs are $10.37 per book, and annual fixed operating costs are $74,300.

a. Find the operating breakeven point in number of books.

b. Calculate the total operating costs at the breakeven volume found in part (a).

c. If Barry estimates that at a minimum he can sell 2,060 books per month, should he go into the business?

d. How much EBIT will Barry realize if he sells the minimum 2,060 books per month noted in part (c)?

Grey Products has fixed operating costs of $380,000, variable operating costs of $16.41 per unit, and a selling price of $63.22 per unit.

a. Calculate the operating breakeven point in units.

b. Calculate the firm's EBIT at 12,000, 13,000, and 14,000 units, respectively.

c. With 13,000 units as a base, what are the percentage changes in units sold and EBIT as sales move from the base to the other sales levels used in part (b)?

d. Use the percentages computed in part (c) to determine the degree of operating leverage (DOL).

e. Use the formula for degree of operating leverage to determine the DOL at 13,000 units.

Northwestern Savings and Loan has a current capital structure consisting of $230,000 of18% (annual interest) debt and 1,000 shares of common stock. The firm pays taxes at the rate of 35%.

a. Using EBIT values of $78,000 and $124,000, determine the associated earnings per share (EPS).

b. Using $78,000 of EBIT as a base, calculate the degree of financial leverage (DFL).

c. Rework parts a and b assuming that the firm has $103,000 of 18% (annual interest) debt and 2,000 shares of common stock.

a. Calculate the EPS for EBIT value of $78,000 below: (Round to the nearest dollar except for the EPS which should be rounded to the nearest cent.)

EBIT	$
Less: Interest
Net profits before taxes	$
Less: Taxes (35%)
Net profit after taxes	$
EPS (1,000 shares)	$

IntegrativeMultiple leverage measures and predictionCarolina Fastener, Inc., makes a patented marine bulkhead latch that wholesales for $6.18. Each latch has variable operating costs of $3.42. Fixed operating costs are $49,100 per year. The firm pays $12,500 interest and preferred dividends of $6,300 per year. At this point, the firm is selling 32,000 latches per year and is taxed at a rate of 40%.

a. Calculate Carolina Fastener's operating breakeven point.

b. On the basis of the firm's current sales of 32,000 units per year and its interest and preferred dividend costs, calculate its EBIT and earnings available for common stockholders (EACS).

c. Calculate the firm's degree of operating leverage (DOL).

d. Calculate the firm's degree of financial leverage (DFL).

e. Calculate the firm's degree of total leverage (DTL).

f. Carolina Fastener has entered into a contract to produce and sell an additional 15,200 latches in the coming year. Use the DOL, DFL, and DTL to predict and calculate the changes in EBIT and earnings available for common. Check your work by a simple calculation of Carolina Fastener's EBIT and earnings available for common, using the basic information given.