Question -1

Lilies, a flower shop, has the following data for the most recent fiscal year:

Fixed Costs $2,300/month

Variables Costs (per unit):

Packets $ 0.75

Dcor $ 3.00

Misc. $ 2.00

Sales Price $ 50.00

What is Lilies breakeven point in sales per month?

The owner of Lilies is planning on moving to a new location that will cut fixed costs by 30 %. The price can be lowered to $45 per unit. What is the new breakeven point in sales (per month)?

Question - 2

Chad Gates owns Strings Attached, a store that sells guitars. The company has $5 million in current annual sales, fixed operating costs of $300,000, and $700,000 in variable operating costs, for a total EBT of $2.5 million. The firm has debt of $16,666,666.67, on which it pays 9% annual interest. The degree of combined leverage (DCL) for Strings Attached is 1.72.

Calculate the degree of operating leverage (DOL).

What is the degree of financial leverage (DFL) for Strings Attached? Calculate your answer using the EBIT and interest expense figures and your knowledge of how DOL and DFL jointly determine DCL.

If sales next year increase by 20%, what will be the percent change in net income?