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12. The Harmon Company manufactures skates

12. The Harmon Company manufactures skates
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FINANCE

FIN 200
Axia College of University of Phoenix (UoP)

Foundations of Financial Management
Block Hirt Danielsen

Introduction to Finance: Harvesting the Money Tree
Fin 200 Week Solution
Chapter 5


12. The Harmon Company manufactures skates. The company’s income statement
for 2008 is as follows:

HARMON COMPANY
Income Statement
For the Year Ended December 31, 2008
Sales (30,000 skates @ $25) . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,000
Less: Variable costs (30,000 skates at $7) . . . . . . . . . . . . . . . 210,000
Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,000
Earnings before interest and taxes (EBIT) . . . . . . . . . . . . . . . . . 270,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000
Earnings before taxes (EBT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Income tax expense (35%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Earnings after taxes (EAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000

Given this income statement, compute the following:
a. Degree of operating leverage.
b. Degree of financial leverage.
c. Degree of combined leverage.
d. Break-even point in units.

 

FILE: MS WORD

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