Question
Stardust Berhad produces computer chips that wholesales for RM7. Each unit has variable operating costs of RM3.00. Fixed operating costs are RM55,000 per year. The
Stardust Berhad produces computer chips that wholesales for RM7. Each unit has variable operating costs of RM3.00. Fixed operating costs are RM55,000 per year. The firm pays RM12,000 interest and preferred dividends of RM6,000 per year. At this point, the firm is selling 30,000 units per year and is taxed at a rate of 40%. (Note: Give all final answers in 2 decimal places)
(i) Calculate Stardust's operating breakeven point in units. (2 marks)
(ii) On the basis of the firm's current sales of 30,000 units per year and its interest and preferred dividend costs, calculate its earnings before interest and tax (EBIT) and earnings available for common shareholders. (6 marks)
(iii) Calculate the firm's degree of operating leverage (DOL). (2 marks)
(iv) Calculate the firm's degree of financial leverage (DFL). (2 marks)
(v) Calculate the firm's degree of total leverage (DTL). (2 marks)
(vi) Stardust has entered into a contract to produce and sell an additional 15,000 computer chips in the coming year. Calculate the new EBIT. (4 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started