Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

d. Discuss the P13-17 Integrative: Multiple leverage measures and prediction Profarma shpk, an Albanian pharmaceutical company, makes a patented flu medicine that wholesales for L600.

image text in transcribed
d. Discuss the P13-17 Integrative: Multiple leverage measures and prediction Profarma shpk, an Albanian pharmaceutical company, makes a patented flu medicine that wholesales for L600. Each bottle of the medicine has variable operating costs of L400, while fixed costs are L2,000,000 per year. The firm pays L150,000 interest and preferred dividends of L40,000 per year. At this point the firm is selling 11,000 bottles of medicine per year and is taxed at a rate of 15%. a. Calculate Profarma's operating breakeven point. b. On the basis of the firm's current sales of 11,000 bottles per year and its interest and preferred dividend costs, calculate its EBIT and earnings available for common stockholders. 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. Profarma has entered into a special contract with the Albanian government to produce and sell an additional 5,500 bottles of the flu medicine in the coming year. Use the DOL, DFL, and DTL to predict and calculate the changes in EBIT and earnings available for common stockholders. Check your work by a simple calculation of Profarma's EBIT and earnings available for common stockholders, using the basic information given

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Excise Tax Ozone Depleting Chemicals IRS Audit Techniques Guide

Authors: Internal Revenue Service

1st Edition

1304114279, 978-1304114273

More Books

Students also viewed these Accounting questions