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The Cold Experience, Inc., a leading manufacturer of The frozen dessert products, is considering the addition of a new product: frozen yogurt. The firm estimates
The Cold Experience, Inc., a leading manufacturer of The frozen dessert products, is considering the addition of a new product: frozen yogurt. The firm estimates that each cup will sell for $5 and that the variable costs per cup will be 60% of the selling price. The fixed costs are expected to be $7 million. The firm expects to sell at least 10M cups the first year and that the marginal tax rate will be 20%. The firm expects to pay $600,000 in preferred dividends and has 1 million shares of common stock outstanding. The firm also has interest expense of $900,000 1. Create an income statement including EPS for the new frozen yogurt's first year using the information provided. 2. Determine the operating break-even point in units and also in dollars. 3. Determine its operating leverage, financial leverage, and combined leverage. 4. If Cold Experience expects sales to go up by -3%, what percentage change in EBIT and EPS should it expects? Explain
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