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Case 4 and 5: leverage and Break-even Analysis 1. Hotel Corp. is planning to put-up a hotel in Singapore. Upon evaluation by the finance department
Case 4 and 5: leverage and Break-even Analysis 1. Hotel Corp. is planning to put-up a hotel in Singapore. Upon evaluation by the finance department the following expenses are expected to be incurred by the company if it plans to operate for 365 days a year in Manila Fixed operating costs for one year period= $24.000.000.00 Expected variable costs for every overnight stay per room = $2000.00 A. At least how many bookings for the year should the hotel have to earn profit if they decide to offer Php5.000 for an over-night stay? B. If the company can only put-up a hotel that have 50 rooms maximum. what would be the break-even price of an overnight stay? C. How much is the earnings before interest and tax for the year end of the hotel if the price offered is $4,000 per room assuming that the hotel has total of 50 rooms? D. Using the same information in letter C. how much is the net income if interest expense is 20% of EBIT and the government charges a 30% income tax? 2. Play-More Toys produces inflatable beach balls. selling 400.000 balls per year. Each ball produced has a variable operating cost of $0.84 and sells for $1 .00. Fixed operating costs are $28,000. The firm has annual interest charges of $6.000. preferred dividends of $2,000. and a 40% tax rate. A. Calculate the operating breakeven point in units. B. Use the degree of operating leverage [DOL] formula to calculate DOL. C. Use the degree of financial leverage [DFL] formula to calculate DFL. D. Use the degree of total leverage {DTLJ formula to calculate DTL. Compare this to the product of DOL and DFL calculated in parts b and c
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