财务管理基础13版BRD5Word文档格式.docx

1、For break-even analysis based on accounting flows, depreciation is considered part of fixed costs. For cash flow purposes, it is eliminated from fixed costs.The accounting flows perspective is longer-term in nature because we must consider the problems of equipment replacement.5-5.What does risk tak

2、ing have to do with the use of operating and financial leverage?Both operating and financial leverage imply that the firm will employ a heavy component of fixed cost resources. This is inherently risky because the obligation to make payments remains regardless of the condition of the company or the

3、economy.5-6.Discuss the limitations of financial leverage.Debt can only be used up to a point. Beyond that, financial leverage tends to increase the overall costs of financing to the firm as well as encourage creditors to place restrictions on the firm. The limitations of using financial leverage te

4、nd to be greatest in industries that are highly cyclical in nature.5-7.How does the interest rate on new debt influence the use of financial leverage?The higher the interest rate on new debt, the less attractive financial leverage is to the firm.5-8.Explain how combined leverage brings together oper

5、ating income and earnings per share.Operating leverage primarily affects the operating income of the firm. At this point, financial leverage takes over and determines the overall impact on earnings per share. A delineation of the combined effect of operating and financial leverage is presented in Ta

6、ble 5-6 and Figure 5-5.5-9.Explain why operating leverage decreases as a company increases sales and shifts away from the break-even point.At progressively higher levels of operations than the break-even point, the percentage change in operating income as a result of a percentage change in unit volu

7、me diminishes. The reason is primarily mathematical as we move to increasingly higher levels of operating income, the percentage change from the higher base is likely to be less.5-10.When you are considering two different financing plans, does being at the level where earnings per share are equal be

8、tween the two plans always mean you are indifferent as to which plan is selected?The point of equality only measures indifference based on earnings per share. Since our ultimate goal is market value maximization, we must also be concerned with how these earnings are valued. Two plans that have the s

9、ame earnings per share may call for different price-earnings ratios, particularly when there is a differential risk component involved because of debt.Problems1. Ensco Lighting Company has fixed costs of $100,000, sells its units for $28, and has variable costs of $15.50 per unit. a. Compute the bre

10、ak-even point. b. Ms. Watts comes up with a new plan to cut fixed costs to $75,000. However, more labor will now be required, which will increase variable costs per unit to $17. The sales price will remain at $28. What is the new break-even point? c. Under the new plan, what is likely to happen to p

11、rofitability at very high volume levels （compared to the old plan）?5-1. Solution:Ensco Lighting Companya. b. The breakeven level decreases.c. With less operating leverage and a smaller contribution margin, profitability is likely to be less at very high volume levels.2. Eaton Tool Company has fixed

12、costs of $200,000, sells its units for $56, and has variable costs of $31 per unit. b. Ms. Eaton comes up with a new plan to cut fixed costs to $150,000. However, more labor will now be required, which will increase variable costs per unit to $34. Thesales price will remain at $56. What is the new b

13、reak-even point?5-2. Solution:Eaton Tool Companyc. With less operating leverage and a smaller contribution margin, profitability is likely to be less than it would have been at very high volume levels.3 Draw two break-even graphsone for a conservative firm using labor-intensive production and anothe

14、r for a capital-intensive firm. Assuming these companies compete within the same industry and have identical sales, explain the impact of changes in sales volume on both firms profits.5-3. Solution:Labor-Intensive and capital-intensive break-even graphsThe company having the high fixed costs will ha

15、ve lower variable costs than its competitor since it has substituted capital for labor. With a lower variable cost, the high fixed cost company will have a larger contribution margin. Therefore, when sales rise, its profits will increase faster than the low fixed cost firm and when the sales decline

16、, the reverse will be true.4 The Harmon Company manufactures skates. The companys income statement for 2008 is as follows:HARMON COMPANYIncome StatementFor the Year Ended December 31, 2008Sales （30,000 skates $25） $750,000 Less: Variable costs （30,000 skates at $7） 210,000 Fixed costs 270,000Earning

17、s before interest and taxes （EBIT） Interest expense 170,000Earnings before taxes （EBT） 100,000Income tax expense （35%） 35,000Earnings after taxes （EAT） $ 65,000Given this income statement, compute the following: a. Degree of operating leverage. b. Degree of financial leverage. c. Degree of combined

18、leverage. d. Break-even point in units.5-4. Solution:Harmon CompanyQ = 30,000, P = $25, VC = $7, FC = $270,000, I = $170,000c. d. 5. U.S. Steal has the following income statement data:Units SoldTotal Variable CostsFixed CostsTotal CostsTotal RevenueOperating Income （Loss）40,000$ 80,000$50,000$130,00

19、0$160,000$30,00060,000 120,000 50,000 170,000 240,000 70,000 a. Compute DOL based on the formula below （see page 128 for an example）: b. Confirm that your answer to part a is correct by recomputing DOL using formula 53 on page_. There may be a slight difference due to rounding.Q represents beginning

20、 units sold （all calculations should be done at this level）. P can be found by dividing total revenue by units sold. VC can be found by dividing total variable costs by units sold.5-5. Solution:U. S. Steal5-5 （Continued）6 Lenos Drug Stores and Halls Pharmaceuticals are competitors in the discount dr

21、ug chain store business. The separate capital structures for Leno and Hall are presented below.LenoHallDebt 10% $100,000$200,000Common stock, $10 par 200,000Total $300,000Shares 20,000Common shares 10,000 a. Compute earnings per share if earnings before interest and taxes are $20,000, $30,000, and $

22、120,000 （assume a 30 percent tax rate）. b. Explain the relationship between earnings per share and the level of EBIT. c. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT?5-6. Solution:a. Leno Drug Stores and Hall Pharmaceutic

23、alsEBIT$ 20,000Less: Interest 10,000 20,000EBT Taxes 30% 3,000 0EAT7,000SharesEPS$ .35$ 30,000 6,00014,000$ .70$120,000110,000 33,000 30,00077,00070,000$ 3.85$ 7.005-6. （Continued）b. Before-tax return on assets = 6.67%, 10% and 40% at the respective levels of EBIT. When the before-tax return on asse

24、ts （EBIT/Total Assets） is less than the cost of debt （10%）, Leno does better with less debt than Hall. When before-tax return on assets is equal to the cost of debt, both firms have equal EPS. This would be where the method of financing has a neutral effect on EPS. As return on assets becomes greater than the interest rate, financial leverage becomes more favorable for Hall.c. 12% $300,000 = $36,000 break-even level for EBIT.7. Glynn Enterprises and Monroe, Inc., both produce fluid control products. Their financial information is as follows:Capital StructureGly