Purchase Solution

Assessing a problem about leveraging

Not what you're looking for?

Ask Custom Question

Leverages

Mr. Jim Smith is considering the possibility of opening his own machine shop .He expects first year sales to be AED. 600,000 , and he feels that his variable costs will be approximately 50% of sales . His fixed costs in the first year will be
AED. 250,000.

Jim will need to raise AED 800,000 to start the business and is considering two ways of financing :

1) 60% equity financing and 40% debt at an interest rate of 14% or
2) 100% equity

Required :

1) Calculate the degree of financial leverage under each financing plan. Include an explanation of what this figure means.
2) Calculate the degree of combined leverage under each financing plan.

Purchase this Solution
Solution Summary

This posting helps with a problem about leverages. This solution helps consider two ways of financing and calculate the degree of financial leverage under a financing plan.

Solution Preview

EXPLANATION
financial leverage denotes the degree to which the business is using the debt. If the business is highly levered, then there is a risk of becoming
bankrupt if ...

Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Introduction to Finance

This quiz test introductory finance topics.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

View More Free Quizzes
Related BrainMass Solutions

  • Pepsi HR Strategy

    Step 3: Assessment of the Company's Human Resources Competitive Position Based on analysis of information obtained in Steps 1-3, prepare a professionally written report assessing the assessment of the company's human resources competitive position,

  • Interanl Audit and the Internal Control System

    However, assessing risks also includes identifying opportunities that ensure long-term value creation. (2) Thus, the manager should consider leveraging an internal audit function in a risk management program.

  • Assessment of Davidson

    First off, Davidson adamantly maintains that the traditional view deems diversity as a more of a problem, highly reactive in approach as this type of ideology implies that diversity warrants a resolution, especially from a leadership view.

  • Generic Strategy, and Grand Strategy

    The company that has been successful in leveraging value discipline is McDonald's. To become a leader in the marketplace a firm must have a competitive strategy.

  • Elements of Group Dynamics Scenario

    individuals can be leveraged for the good of the team I'm having a little problem in this class.

  • Project management: WBS, Leveraging project, Team member

    182033 Project management: WBS, Leveraging project, Team member What is the importance of experience when defining a WBS? What is the role of the Team in leveraging Project related experience?

  • Simulation Methods: Project Risks

    The accuracy of assessing project risk depends on our knowledge about the risk agents. Since, there can be inaccuracies about predicting the accuracy of risk agents; the simulation methods are more beneficial than risk mapping.

  • The Components of Effective Knowledge Management

    A discussion of why knowledge management and the leveraging of organizational capabilities are important tools for integrating systems, processes, and leadership practices that promote the creation of a culture of innovation.

  • Assessing controls

    The problem I am asking about is Problem 5-57 "Tone at the top" simply means the type of atmosphere that management facilitates with their policies.

View More Related Solutions