Figure 5-1

5-5

Figure 5-1 refers to "operating income, but "operating income" are words which dont appear on Table 5-5. Resolve this conflict/discrepancy/whater ever. (Hint: Figure 5-5)

Table 5-5

Figure 5-1

Question: Firgure 5-1 refers to operating cost, but operating income are words which do not appear on Table 5-5. Resolve this conflict, discrepancy and oversight (Hint: Figure 5-5)

Figure 5-5

Figure 5.1 BUVUT CA LUI Total revent Revenues and costs ($thousands) 200 160 Total 120 BE Variable costs 100 BO 60 Fored costs 40 120 20 40 50 60 80 Units produced and sold thousands Fixed costs ($60,000) Price (52) Variable coste per unit (50.60) Nole, first of all, that our fixed costs are $60.000. regardless of wine, and that our variable costs at $0.80 per unit) and added to lixed costs to determine total costs alany point. The total revenue line is determined by multiplying price (52) times volume. of particular interest is the heak-even (BE) point at 50.000 units, where the total C and total revenue line intersect. The numbers are as follows: ISUS Plan A Devergoed 1. EBIT (0) Earnings before interest and taxeo (EBIT) -interest Earnings before taces (EBT) Taxes Earnings after tanes (EAT) Shares Earnings per share (EPS) 2. EBIT ($12,000) Earnings before interest and taxes (CBM) Interest Earnings before ans (LUN 0 $ 12.000 S(12.DOC 15.000) $ 18,000 8,000 SC.75 $ 4.000 $ 4,000) 2.000 $ 2,000 24,000 $10.000 $ 12,000 12,000 D 0 $ 12.000 4,000 $ 8.000 4,000 $ 4,000 24.000 $0.17 3.000 $0 Earnings after taxes (EAT Shares Earnings per share (EPS) 3. EBIT ($16,000) Enmings before interest and taxes EBIT - Interest Earnings before trees EBT) - Taxes in Earnings after takes (EAT) Shares Earrings per sher (EPS 4. EBIT $36,000 Earnings before interest and taxes EBIT) 2,000 4,000 2.000 $ 2.000 8.000 S025 $ 16,000 4.000 $ 12.000 8.000 $ 6.000 24,000 50.25 S 38.000 12.000 $ 24,000 12.000 S 12.000 8.000 S11 $36.000 4.000 $ 32.000 16.000 $16.000 24 000 500 Enrings before taxes (ET) - Taxes Esmings after taxes EATI Shores Eamos per share (EPS) 5. EBIT 1560.000 Earrings beroenterest and taxes EBM lotet Earning before EDT Taxes S 50.000 12.000 S48.000 $ 60,000 4,000 $ 50,000 2000 2400 Not see 259357534/165/ Table 5-5 impact of financing plan on earnings por share Plan (consort) 0 $ 12,000 ${12,000) (6,000) $ 16,000) 8,000 S(0.75) 0 $ 4,000 $ (4,000) (2.000) $ 12,000) 24,000 $(0.08) $ 12,000 12.000 $ 0 1. EBIT (0) Earnings before interest and taxes (EBIT) - Interest Earnings before taxes (EBT) - Taxes (T) ............. Earnings after taxes (EAT) Shares Earnings per share (EPS) 2. EBIT ($12,000) Earnings before interest and taxes (EBIT) - Interest (0) Earnings before taxes (EBT) - Taxes (1) Earnings after taxes (EAT) Shares Earnings per share (EPS) 3. EBIT ($16,000) Earnings before interest and taxes (EBIT) - Interest ( Earnings before taxes (EBT) - Taxes (T) Earnings after taxes (EAT) blo $ 12,000 4,000 $ 8,000 4,000 $ 4,000 24,000 $0.17 $ 8,000 $0 $ 16,000 12,000 $ 4,000 2,000 $ 2,000 $ 16,000 4,000 $ 12,000 6,000 6,000 w 259357534/165/ Earnings before taxes (LT) 4,000 12.000 Taxes (0) 2,000 8,000 Earnings after taxes (EAT) $ 2,000 $ 6,000 Shares 8,000 24,000 Earnings per share (EPS) $0.25 $0.25 4. EBIT ($36,000) Earnings before interest and taxes (EBIT) $ 36,000 $ 36,000 - Interest (0) 12,000 4,000 Earnings before taxes (EBT) $ 24,000 $ 32,000 - Taxes (T) 12,000 16,000 Earnings after taxes (EAT) $ 12,000 $ 16,000 Shares 8,000 24,000 Earnings per share (EPS) $1.50 $0.67 5. EBIT ($60,000) Earnings before interest and taxes (EBIT) $ 60,000 $ 60,000 - Interest () 12,000 4,000 Earnings before taxes (EBT) $ 48,000 $ 56,000 - Taxes (1) 24.000 28,000 Earnings after taxes (EAT) $ 24,000 $ 28,000 Shares 8,000 24,000 Earnings per share (EPS) $3.00 $1.17 "The assumption is that farge losses can be written off against other income, perhaps in other years, thus providing the firm with a tax savings benefit. The tax rate is 50 percent for ease of computation. 357534/157/ Figure 5.1 Total revenue Revenues and costs (8 thousands) 200 160 Total costs 120 BE 100 Variable costs 80 LOSS 60 Foxed costs 40 5:55 9/16/ w * 60 Fbced costs 40 20 120 40 50 60 BO 100 Units produced and sold (thousands) Fixed costs ($60,000) Price (52) Variable costs per unit ($0.80) Note, first of all, that our fixed costs are $60,000, regardless of volume, and that our variable costs (at $0.80 per unit) are added to fixed costs to determine total costs at any point. The total revenue line is determined by multiplying price ($2) times volume. of particular interest is the break-even (BE) point at 50,000 units, where the total costs and total revenue lines intersect. The numbers are as follows: Total Variable Costs (TVC) (50,000 $0.80) $40,000 Fixed Costs (FC) $60,000 Units = 50,000 Total Costs Total Revenue (TC) (TR) $100,000 (50,000 $2) $100,000 Operating Income (loss) 0 w 12 Douse prt so Not syncing You will observe, first, that operating leverage influences the top half of the income statement-determining operating income. The last item under operating leverage. operating income, then becomes the initial item for determining financial leverage. Figure 5.5 Combining operating and financial leverage Earnings generated EPS = $1.50 Financial leverage Operating income = EBIT $36,000 $36.000 Operating leverage Sales $160,000 Leverage impact Figure 5.1 BUVUT CA LUI Total revent Revenues and costs ($thousands) 200 160 Total 120 BE Variable costs 100 BO 60 Fored costs 40 120 20 40 50 60 80 Units produced and sold thousands Fixed costs ($60,000) Price (52) Variable coste per unit (50.60) Nole, first of all, that our fixed costs are $60.000. regardless of wine, and that our variable costs at $0.80 per unit) and added to lixed costs to determine total costs alany point. The total revenue line is determined by multiplying price (52) times volume. of particular interest is the heak-even (BE) point at 50.000 units, where the total C and total revenue line intersect. The numbers are as follows: ISUS Plan A Devergoed 1. EBIT (0) Earnings before interest and taxeo (EBIT) -interest Earnings before taces (EBT) Taxes Earnings after tanes (EAT) Shares Earnings per share (EPS) 2. EBIT ($12,000) Earnings before interest and taxes (CBM) Interest Earnings before ans (LUN 0 $ 12.000 S(12.DOC 15.000) $ 18,000 8,000 SC.75 $ 4.000 $ 4,000) 2.000 $ 2,000 24,000 $10.000 $ 12,000 12,000 D 0 $ 12.000 4,000 $ 8.000 4,000 $ 4,000 24.000 $0.17 3.000 $0 Earnings after taxes (EAT Shares Earnings per share (EPS) 3. EBIT ($16,000) Enmings before interest and taxes EBIT - Interest Earnings before trees EBT) - Taxes in Earnings after takes (EAT) Shares Earrings per sher (EPS 4. EBIT $36,000 Earnings before interest and taxes EBIT) 2,000 4,000 2.000 $ 2.000 8.000 S025 $ 16,000 4.000 $ 12.000 8.000 $ 6.000 24,000 50.25 S 38.000 12.000 $ 24,000 12.000 S 12.000 8.000 S11 $36.000 4.000 $ 32.000 16.000 $16.000 24 000 500 Enrings before taxes (ET) - Taxes Esmings after taxes EATI Shores Eamos per share (EPS) 5. EBIT 1560.000 Earrings beroenterest and taxes EBM lotet Earning before EDT Taxes S 50.000 12.000 S48.000 $ 60,000 4,000 $ 50,000 2000 2400 Not see 259357534/165/ Table 5-5 impact of financing plan on earnings por share Plan (consort) 0 $ 12,000 ${12,000) (6,000) $ 16,000) 8,000 S(0.75) 0 $ 4,000 $ (4,000) (2.000) $ 12,000) 24,000 $(0.08) $ 12,000 12.000 $ 0 1. EBIT (0) Earnings before interest and taxes (EBIT) - Interest Earnings before taxes (EBT) - Taxes (T) ............. Earnings after taxes (EAT) Shares Earnings per share (EPS) 2. EBIT ($12,000) Earnings before interest and taxes (EBIT) - Interest (0) Earnings before taxes (EBT) - Taxes (1) Earnings after taxes (EAT) Shares Earnings per share (EPS) 3. EBIT ($16,000) Earnings before interest and taxes (EBIT) - Interest ( Earnings before taxes (EBT) - Taxes (T) Earnings after taxes (EAT) blo $ 12,000 4,000 $ 8,000 4,000 $ 4,000 24,000 $0.17 $ 8,000 $0 $ 16,000 12,000 $ 4,000 2,000 $ 2,000 $ 16,000 4,000 $ 12,000 6,000 6,000 w 259357534/165/ Earnings before taxes (LT) 4,000 12.000 Taxes (0) 2,000 8,000 Earnings after taxes (EAT) $ 2,000 $ 6,000 Shares 8,000 24,000 Earnings per share (EPS) $0.25 $0.25 4. EBIT ($36,000) Earnings before interest and taxes (EBIT) $ 36,000 $ 36,000 - Interest (0) 12,000 4,000 Earnings before taxes (EBT) $ 24,000 $ 32,000 - Taxes (T) 12,000 16,000 Earnings after taxes (EAT) $ 12,000 $ 16,000 Shares 8,000 24,000 Earnings per share (EPS) $1.50 $0.67 5. EBIT ($60,000) Earnings before interest and taxes (EBIT) $ 60,000 $ 60,000 - Interest () 12,000 4,000 Earnings before taxes (EBT) $ 48,000 $ 56,000 - Taxes (1) 24.000 28,000 Earnings after taxes (EAT) $ 24,000 $ 28,000 Shares 8,000 24,000 Earnings per share (EPS) $3.00 $1.17 "The assumption is that farge losses can be written off against other income, perhaps in other years, thus providing the firm with a tax savings benefit. The tax rate is 50 percent for ease of computation. 357534/157/ Figure 5.1 Total revenue Revenues and costs (8 thousands) 200 160 Total costs 120 BE 100 Variable costs 80 LOSS 60 Foxed costs 40 5:55 9/16/ w * 60 Fbced costs 40 20 120 40 50 60 BO 100 Units produced and sold (thousands) Fixed costs ($60,000) Price (52) Variable costs per unit ($0.80) Note, first of all, that our fixed costs are $60,000, regardless of volume, and that our variable costs (at $0.80 per unit) are added to fixed costs to determine total costs at any point. The total revenue line is determined by multiplying price ($2) times volume. of particular interest is the break-even (BE) point at 50,000 units, where the total costs and total revenue lines intersect. The numbers are as follows: Total Variable Costs (TVC) (50,000 $0.80) $40,000 Fixed Costs (FC) $60,000 Units = 50,000 Total Costs Total Revenue (TC) (TR) $100,000 (50,000 $2) $100,000 Operating Income (loss) 0 w 12 Douse prt so Not syncing You will observe, first, that operating leverage influences the top half of the income statement-determining operating income. The last item under operating leverage. operating income, then becomes the initial item for determining financial leverage. Figure 5.5 Combining operating and financial leverage Earnings generated EPS = $1.50 Financial leverage Operating income = EBIT $36,000 $36.000 Operating leverage Sales $160,000 Leverage impact