# Finance..Leaverage

Submitted By shihab
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Chapter 12
Leverage and Capital Structure

Solution to Problems
P12-1. LG 1: Breakeven Point–Algebraic Basic

FC (P − VC) \$12, 350 Q= = 1, 300 (\$24.95 − \$15.45) Q= P12-2. LG 1: Breakeven Comparisons–Algebraic Basic (a) Q =

FC (P − VC) Q= Q= Q= \$45, 000 = 4, 000 units ( \$18.00 − \$6.75) \$30, 000 = 4, 000 units ( \$21.00 − \$13.50 ) \$90, 000 = 5, 000 units \$30.00 − \$12.00 ) (

Firm F: Firm G: Firm H:

(b) From least risky to most risky: F and G are of equal risk, then H. It is important to recognize that operating leverage is only one measure of risk. P12-3. LG 1: Breakeven Point–Algebraic and Graphic Intermediate (a) Q = FC ÷ (P − VC) Q = \$473,000 ÷ (\$129 − \$86) Q = 11,000 units

302

Part 4 Long-Term Financial Decisions

(b)
Graphic Operating Breakeven Analysis

3000

Profits Breakeven Point
Sales Revenue Total Operating Cost

2500

2000

Cost/Revenue (\$000)

Losses
1500 1000

500

Fixed Cost

0 0 4000 8000 12000 16000 20000 24000

Sales (Units)

P12-4. LG 1: Breakeven Analysis Intermediate (a) Q = \$73, 500 = 21, 000 CDs ( \$13.98 − \$10.48)

(b) Total operating costs = FC + (Q × VC) Total operating costs = \$73,500 + (21,000 × \$10.48) Total operating costs = \$293,580 (c) 2,000 × 12 = 24,000 CDs per year. 2,000 records per month exceeds the operating breakeven by 3,000 records per year. Barry should go into the CD business. (d) EBIT = (P × Q) − FC − (VC × Q) EBIT = (\$13.98 × 24,000) − \$73,500 − (\$10.48 × 24,000) EBIT = \$335,520 − \$73,500 − \$251,520 EBIT = \$10,500

Chapter 12

Leverage and Capital Structure

303

P12-5. LG 1: Breakeven Point–Changing Costs/Revenues Intermediate Q = \$40,000 ÷ (\$10 − \$8) = 20,000 books (a) Q = F ÷ (P − VC) = 22,000 books (b) Q = \$44,000 ÷ \$2.00 = 16,000 books (c) Q = \$40,000 ÷ \$2.50 = 26,667 books (d) Q = \$40,000 ÷ \$1.50 (e) The operating breakeven point is directly related to fixed and...

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