Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. consider a firm that has fixed costs of 8m. its sa

Consider a firm that has fixed costs of 8M. Its sales are 30M and the variable...

80.2K

Verified Solution

Question

Finance

  1. Consider a firm that has fixed costs of 8M. Its sales are 30Mand the variable costs are 50% of sales. The firm uses both debtand equity and has an interest expense of 1M. There are notaxes.
  1. Determine the firm’s operating leverage and financialleverage.
  2. Assume that the sales increase by 10%. By how much percentagepoints will the firm’s EBIT increase?
  3. What would be the resulting increase in Net Income?

Answer & Explanation Solved by verified expert
4.2 Ratings (809 Votes)
First we will calculate the Earnings before taxes or net income with the given values Sales 30M Variable costs 50 30M 15M Contribution Sales Variable cost 30M 15M 15M Fixed costs 8M Earnings before interest and taxes EBIT Contribution    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Consider a firm that has fixed costs of 8M. Its sales are 30Mand the variable costs are 50% of sales. The firm uses both debtand equity and has an interest expense of 1M. There are notaxes.Determine the firm’s operating leverage and financialleverage.Assume that the sales increase by 10%. By how much percentagepoints will the firm’s EBIT increase?What would be the resulting increase in Net Income?

Other questions asked by students

Q

A small industrial furnace emits 0.35 m3 s-1 of exhaust gases at a temperature of 95...

Physics
Q

which of the five rules for making a first impression do you most often overlook? (set...

General Management
Q

If dietary intake was poor deficiencies in fat soluble vitamins would occur before water soluble...

Biology
Q

In a Young s double slit experiment the two slits act as coherent sources of...

Physics
Q

5 Two spherical black bodies made of san material and with the same surface finish...

Physics
Q

In a particular city taxicabs charge passengers 2 20 for entering a cab and then...

Calculus
Q

Which of the following ratios, when compared to another firm or the industry average, tells...

Accounting
Q

Sal Amato operates a residential landscaping business in an affluent suburb of St. Louis. In...

Accounting
Q

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer...

Accounting
Q

All required parts for the question You have just been hired by...

Accounting
Q

Chartz 1-2-3 is a top-selling electronic spreadsheet product. Chartz is about to release version 5.0....

Accounting
Q

Aadaki nakit aklarna sahip iki projeyi deerlendiriyorsunuz: Yl Proje X...

Finance