Question
If the earnings before tax is P200,000, contribution margin is P560,000 at 100,000 units of sales, and the times-interest-earned ratio is 3.5, calculate: a)Breakeven point
If the earnings before tax is P200,000, contribution margin is P560,000 at 100,000 units of sales, and the times-interest-earned ratio is 3.5, calculate:
a)Breakeven point in units (# units in which profit = 0)
b)Degree of operating leverage
c)Degree of financial leverage
d)Degree of total leverage
GNM Company wants to expand its facilities by financing a building worth P100 million with an expected return of 12.05%. GNM's capital structure consists of P70 million debt with a yield rate of 12% and P130 million retained earnings at a cost of retained earnings at 14%. If the amount to be financed is greater than their capital structure, the company will issue new common stock with flotation costs at P100/share. Assuming that the dividends for the next year is P70/share, its constant growth rate is 7% and the tax rate is 30%,
a)What is the value of the common stock now (P0), ignoring flotation costs?
b)What is the cost of issuing new common stock?
c)What is the WACC of the building to be financed?
d)Is the project acceptable or not? Explain.
e)Assuming that the building costs P250 million with expected return of 12.53%, what is the WACC of the project?
f)Using (e), is the project acceptable or not? Explain.
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