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Magazine Chapter 2: Financial Analysis and Planning
10BP
Delsing Plumbing Company has beginning inventory of 16,500 units, will sell 55,000 units for the month, and desires to reduce ending inventory to 25 percent of beginning inventory. How many units should Delsing produce?
10BP
Fondren Machine Tools has total assets of \(3,310,000 and current assets of \)879,000. It turns over its fixed assets 3.6 times per year. Its return on sales is 4.8 percent. It has $1,750,000 of debt. What is its return on stockholders鈥� equity?
10BP
Precision Systems had sales of \(820,000, cost of goods of \)510,000, selling and administrative expense of \(60,000, and operating profit of \)103,000. What was the value of depreciation expense? Set this problem up as a partial income statement and determine depreciation expense as the 鈥減lug鈥� figure required to obtain the operating profit.
10BP_a
The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:
STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1 | |
Sales (20,000 tires at \(60 each) | \)1,200,000 |
Less: variable costs (20,000 tires at \(30) | 600,000 |
Less: fixed cost | 400,000 |
Earnings before interest and taxes (EBIT) | \)200,000 |
Interest expenses | 50,000 |
Earning before taxes (EBT) | \(150,000 |
Income tax expenses (30%) | 45,000 |
Earning after taxe (EAT) | \)105,000 |
Given this income statement, compute the following:
a. Degree of operating leverage.
10BP_b
The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:
STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1 | |
Sales (20,000 tires at \(60 each) | \)1,200,000 |
Less: variable costs (20,000 tires at \(30) | 600,000 |
Less: fixed cost | 400,000 |
Earnings before interest and taxes (EBIT) | \)200,000 |
Interest expenses | 50,000 |
Earning before taxes (EBT) | \(150,000 |
Income tax expenses (30%) | 45,000 |
Earning after taxe (EAT) | \)105,000 |
Given this income statement, compute the following:
b. Degree of financial leverage.
10BP_c
The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:
STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1 | |
Sales (20,000 tires at \(60 each) | \)1,200,000 |
Less: variable costs (20,000 tires at \(30) | 600,000 |
Less: fixed cost | 400,000 |
Earnings before interest and taxes (EBIT) | \)200,000 |
Interest expenses | 50,000 |
Earning before taxes (EBT) | \(150,000 |
Income tax expenses (30%) | 45,000 |
Earning after taxe (EAT) | \)105,000 |
Given this income statement, compute the following:
c. Degree of combined leverage.
10BP_d
The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:
STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1 | |
Sales (20,000 tires at \(60 each) | \)1,200,000 |
Less: variable costs (20,000 tires at \(30) | 600,000 |
Less: fixed cost | 400,000 |
Earnings before interest and taxes (EBIT) | \)200,000 |
Interest expenses | 50,000 |
Earning before taxes (EBT) | \(150,000 |
Income tax expenses (30%) | 45,000 |
Earning after taxe (EAT) | \)105,000 |
Given this income statement, compute the following:
d. Break even point in units.
10DQ
Why is interest expense said to cost the firm substantially less than the actual expense, while dividends cost it 100 percent of the outlay?
11
Stein Books Inc. sold 1,900 finance textbooks for \(250 each to High Tuition University in 20X1. These books cost \)210 to produce. Stein Books spent \(12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was \)15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm鈥檚 tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.
11BP
Stein Books Inc. sold 1,900 finance textbooks for \(250 each to High Tuition University in 20X1. These books cost \)210 to produce. Stein Books spent \(12,200 (selling expense) to convince the university to buy its books. Depreciation expense for the year was \)15,200. In addition, Stein Books borrowed $104,000 on January 1, 20X1, on which the company paid 12 percent interest. Both the interest and principal of the loan were paid on December 31, 20X1. The publishing firm鈥檚 tax rate is 30 percent. Did Stein Books make a profit in 20X1? Please verify with an income statement.
