Question
Leverage: Fixed costs and the break-even point: Firm ABC expects to earn $210,000 next years after taxes. Sales will be $4 mil. The firm produces
Leverage: Fixed costs and the break-even point: Firm ABC expects to earn $210,000 next years after taxes. Sales will be $4 mil. The firm produces desks used in colleges. These desks sell for $200 each and have a variable cost per unit of $150. The firms tax rate is 30%. a. What are the firms fixed costs expected to be next year? b. Calculate the firms break-even point in both units and dollars. Leverage analysis: You have developed the following analytical income statement for your corporation. It represents the most recent years operations, which ended yesterday. You are now asked to answer the following questions: Sales $20 mil. Variables costs 12 mil. Fixed costs 5 mil. EBIT 3 mil. Interest expense 1 mil. EBT 2 mil. Taxes (50%) 1 mil. Net Income 1 mil. a. At this level of output, whats the degree of operating leverage? b. Whats the degree of financial leverage? c. Whats the degree of combined leverage? d. Whats the firms break-even point in sales dollars? e. If sales should increase by 30%, by what percent would earnings before taxes (and net income) increase? f. Prepare an analytical income statement that verifies the calculations from part (e).
Please provide all work for the problem, not just the answer so it can be modeled for other questions, thank you :)
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