P13-2-Breakeven comparisons; Algebraic Given the price and cost data shown in the accompanying table for each of the three firms, F, G, and H, answer the questions that follow
Firm F G H
Sales price per unit $18.00 $21.00 $30.000
Variable operating cost per unit 6.75 13.50 12.00
Fixed operating cost 45,000 30,000 90,000
a) What is the operating breakeven point in units for each firm?
b) How would you rank these firms in term of risk?
P13-16-Integrativ; Leverage and Risk Firm R has sales of 100,000 units at $2.00 per unit, variable operating cost of $1.70 per unit, and fixed operating cost of $6,000. Interest of $10,000 per year Firm W has sales of 100,00 units at$2.50 per unit, variable operating cost of $1.00 per unit, and fixed operating cost of $62,500. Interest is $17,500 per year. Assume that both firms are in the 40% tax bracket.
a) Compute the degree of operating, financial, and the total leverage for firm R.
b) Compute the degree of operating, financial, and total leverage for firm W.
c) Compute the relative risk of the two firms.
d) Discuss the principles of leverage that your answers illustrate.
P13-22 Data-Check is considering two capital structures. The key information is shown in the following table. Assume a 40% tax rate.Source of capital Structure A Structure BLong-term debt $100,000 at 16% coupon rate $200,000 at 17% coupon rateCommon stock 4,000 shares 2,000 sharesa. Calculate two EBIT�EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values.b. Plot the two capital structures on a set of EBIT�EPS axes.c. Indicate over what EBIT range, if any, each structure is preferred.d. Discuss the leverage and risk aspects of each structure.e. If the firm is fairly certain that its EBIT will exceed $75,000, which structure would you recommend? Why?
P13-26-Integrative; optimal capital structure. The board of directors of Morales Publishing, Inc., has commissioned a capital structure study. The company has total assets of $40,000,000. It has earnings before interest and taxes of $8,000,000 and it is taxed at a rate of40%
a) Create a spreadsheet like the one in Table 13.10 showing values of debt and equity as well as the total number of shares assuming a book value of $25 per share.