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Current Situation for Xynergy Corporation: Xynergy Corporation most recent sales are $5,000,000 (1 million units at $5 each). Its operating variable costs are 50% of its sales level and its fixed operating costs are $1,500,000. Additionally, it has annual interest charges of 10% from a total Debt of $2,000,000. The firm also has 200,000 shares of common stock outstanding and is subject to a 21% tax rate. The firm is currently financed with 50% debt and 50% equity (common stock at par value of $10) Now, Xynergy is considering an expansion of its facilities. To do so, they need $2,000,000 in additional financing. The firm has 3 plans to consider: Plan A: Sell $2million of new delt at 10% interest. It is expected that variable operating costs will decrease to 40% of its sales, and first operating costs will increase to $1.8 million. Plan B: Sell $2million of new common stock at $20 per share. It is expected that variable operating costs will decrease to 40% of its sales, and fixed operating costs will increase to $1.8 million. Plan Sell $1 million of new debt at a 10% interest and $1 million of new common stock at $20 per share. Variable operating costs will decrease to 40% of itssales, and fixed operating costs will increase to $1.8 million The Vice-president of Finance in Xynergy (your boss) is interested in an analysis of the three proposals for the expansion To do so, she asked you to compute and analyze the following: 1. Construct the Income Statement before the expansion (actual situation) and determine the EPS. 2. At what level of sales (in units) would the firm break even on its operations considering the actual situation? Explain the results obtained. 3. Consider now the proposed expansion and the new cost structure (for its operations and financing). A. At what new sales level (in units) would the firm break even on its operations if they assume that the selling price per unit increase to 58 per unit, the variable costs will decrease to 40% of its sales, and fixed operating costs will increase to $1.8 million. Explain the results obtained. B. Compute the new projected Income Statement and EPS assuming Plan A C. Compute the new projected Income Statement and EPS assuming Plan B. D. Compute the new projected Income Statement and EPS assuming Planc E. Compute the DOL (Degree of Operating Leverage) and the DFL (Degree of Financing Leverage and the DTL (degree of Total Leverage) if sales are expected to increase to milion, compared with the actual situation for the three proposed plans. Explain your results Current Situation for Xynergy Corporation: Xynergy Corporation most recent sales are $5,000,000 (1 million units at $5 each). Its operating variable costs are 50% of its sales level and its fixed operating costs are $1,500,000. Additionally, it has annual interest charges of 10% from a total Debt of $2,000,000. The firm also has 200,000 shares of common stock outstanding and is subject to a 21% tax rate. The firm is currently financed with 50% debt and 50% equity (common stock at par value of $10) Now, Xynergy is considering an expansion of its facilities. To do so, they need $2,000,000 in additional financing. The firm has 3 plans to consider: Plan A: Sell $2million of new delt at 10% interest. It is expected that variable operating costs will decrease to 40% of its sales, and first operating costs will increase to $1.8 million. Plan B: Sell $2million of new common stock at $20 per share. It is expected that variable operating costs will decrease to 40% of its sales, and fixed operating costs will increase to $1.8 million. Plan Sell $1 million of new debt at a 10% interest and $1 million of new common stock at $20 per share. Variable operating costs will decrease to 40% of itssales, and fixed operating costs will increase to $1.8 million The Vice-president of Finance in Xynergy (your boss) is interested in an analysis of the three proposals for the expansion To do so, she asked you to compute and analyze the following: 1. Construct the Income Statement before the expansion (actual situation) and determine the EPS. 2. At what level of sales (in units) would the firm break even on its operations considering the actual situation? Explain the results obtained. 3. Consider now the proposed expansion and the new cost structure (for its operations and financing). A. At what new sales level (in units) would the firm break even on its operations if they assume that the selling price per unit increase to 58 per unit, the variable costs will decrease to 40% of its sales, and fixed operating costs will increase to $1.8 million. Explain the results obtained. B. Compute the new projected Income Statement and EPS assuming Plan A C. Compute the new projected Income Statement and EPS assuming Plan B. D. Compute the new projected Income Statement and EPS assuming Planc E. Compute the DOL (Degree of Operating Leverage) and the DFL (Degree of Financing Leverage and the DTL (degree of Total Leverage) if sales are expected to increase to milion, compared with the actual situation for the three proposed plans. Explain your results
