Part One: External Funding Requirement
Your company, Martin Industries, Inc., has experienced a higher than expected demand for its new product line. The company plans to expand its operation by 25% by spending $5,000,000 for an additional building.
What are retained earnings for last year?
How much debt will be needed for the new project?
If Martin decides to retain all earnings for the coming year, how much external equity will be required?
Part Two: The Degree of Leverage
Assume that two companies, Brake, Inc. and Carbo, Inc., have the following operating results:
Calculate the contribution margins for the two companies.
Calculate the break-even point for each firm, in dollars and in units.
Compare the two companies. What conclusions could you make regarding the use of operating leverage employed by the two firms?
Assume that both companies experience an increase in sales by 15% next year. What would be the operating income for each firm net year? Explain the difference in the change in operating income between the two companies.
Based on the information from the above questions, what recommendations would you make to the two companies and why?
Submit your findings from Parts One and Two above in a Microsoft Excel Show all your calculations.
Solution helps in finding for both companies experience an increase in sales by 15% next year. What would be the operating income for each firm net year