Finance Question
Not what you're looking for?
Imagine that you were hired recently as a financial analyst for a relatively new, highly leveraged ski manufacturer located in the foothills of Colorado's Rocky Mountains. Your firm manufactures only one product, a state-of-the-art snow ski. The company has been operating up to this point without much quantitative knowledge of the business and financial risks it faces. Ski season just ended, however, so the president of the company has started to focus more on the financial aspects of managing the business. He has set up a meeting for next week with the CFO, Maria Sanchez, to discuss matters such as the business and financial risks faced by the company. Accordingly, Maria has asked you to prepare an analysis to assist her in her discussions with the president. As a first step in your work, you compiled the following information regarding the cost structure of the company:
Output level
80,000 units
Operating assets
$4,000,000
Operating asset turnover
8 times
Return on operating assets
32%
Degree of operating leverage
6 times
Interest expense
$600,000
Tax rate
35%
As the next step, you need to determine the break-even point in units of output for the company. One of your strong points has been that you always prepare supporting work papers, which show how you arrived at your conclusions. You know Maria would like to see these work papers to facilitate her review of your work. Therefore, you will have the information you require to prepare an analytical income statement for the company. You are sure that Maria would also like to see this statement. In addition, you know that you need it to be able to answer the following questions. You also know Maria expects you to prepare, in a format that is presentable to the president, answers to the following questions to serve as a basis for her discussions with the president.
* a. What is the firm's break-even point in sales dollars?
* b. If sales should increase by 30 percent (as the president expects), by what percentage would EBT (earnings before taxes) and net income increase?
* c. Prepare another income statement, this time to verify the calculations from part b.
Purchase this Solution
Solution Summary
This solution provides a complete computation of the given accounting problem formatted in Excel.
Solution Preview
Hi,
Get the answer with attachment.
Output level 80000
Operating asset 4000000
Operating asset turnover 8 times
Return onperating asset 32%
Degree of operating leverage 6 times
Interest expenses 600000
Tax rate 35%
Income statement
Unit 80000 Per unit
Sales $32,000,000.00 ...
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
Recent Feedback
- "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
- "thank you!"
- "Thank you again Jayant. You are super fast. "
- "Thank you Jayant. You are appreciated. "
- "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.