Question
The Cold Experience, a leading manufacturer of frozen dessert products, is considering the addition of a new product: frozen yogurt. The firm estimates that each
The Cold Experience, a leading manufacturer of frozen dessert products, is considering the addition of a new product: frozen yogurt. The firm estimates that each cup will sell for $2 and the variable costs per cup will be 70% of the selling price. The firm expects to sell at least 10 million cups the first year and the marginal tax rate will be 40%. Fixed costs are 4 million, interest expense is 160,000. They expect to pay $300,000 in preferred dividends and have 1 million shares of common stock outstanding.
a. Create an income statement for the new frozen yogurt's first year using the information provided.
b. Determine the operating break-even point in units and also in dollars.
c. Calculate the DOL, DFL, and DCL
d. Use Goal seek to determine: How low could be the price go to break even, EBIT is zero. Make note of that price and type in a textbook. Now change the price back to 2.00. How many units would they need to sell in order to have earnings per share be 1.00?
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