Company X: Principles of Finance
Not what you're looking for?
Company X wants to create additional supply development space. The additional space will cost $450,000. The expansion can be financed either by bonds at an interest rate of 8%, or by selling 40,000 shares of common stock at $20 per share.
Current Income Statement
Sales $2,900,000
Less: Variable cost (25%) $392,000
Fixed cost 475,000
EBIT 867,000
Less: Interest expense 432,000
EBT 435,000
Less: Taxes @7% 30,450
EAT $404,550
Shares 127,000
Earnings per share $ 3.19
Lets say after the additional supply space, sales are expected to go up $109,500.
Variable cost will remain at 30% of sales, and fixed cost will go up $333,000. The tax rate is 30%.
( ) calculate the degree of operating leverage, the degree of financing leverage, and the degree of combined leverage before expansion.
(()) develop the income statement for two financial plans, Debt and Equity.
((())) calculate the degree of operating leverage, the degree of financial leverage, and degree of combined leverage after expansion, for the 2 financing plans.
Purchase this Solution
Solution Summary
The solution discusses the principles of finance for Company X.
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
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.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.