BOOK Foundations of Financial Management 16th HW-Chapter 5Please complete this assignment and submit this same document with your answers via the provided link. Your assignment will be electronically compared against student repository and website content by Turnitin®. Cases of plagiarism will be shared with the program director. Please see section 3.5 of the class syllabus for more information concerning plagiarism. Please, do not alter this document and do not forget to type your name in the space provided below.
Name __________________________________________________________
Problem 1
(See pages 126 – 145)
A new Covid19 testing devise has been developed by Medical Electronics Corporation. It is estimated that variable operating costs will be 60% of sales (or $60 per unit), while fixed operating costs will be $100,000. The first year's sales estimates are 10,000 units at $100 per unit. The cost of the manufacturing facility was financed with debt, the interest expense associated with that debt for the first year is expected to be $20,000. Assume an income tax rate of 30%. The company will not develop or sell any other product soon. (PLEASE SHOW YOUR WORK).
a) Construct Medical Electronics Corporation’s projected income statement for the first year of operation (complete the following table).
Sales
|
|
Less: Variable operating costs
|
|
Fixed operating costs
|
|
Earnings before interest and taxes (EBIT)
|
|
Less: Interest expense
|
|
Earnings before taxes (EBT)
|
|
Less taxes (30%)
|
|
Earnings after taxes (EAT)
|
|
b) Compute the first year expected degree of operating leverage (DOL)
c) Interpret the calculated degree of operating leverage. See textbook, page 132.
d) Compute the Operating Break-even point in quantity.
Problem 2
(See pages 126 – 145)
Merck Corporation manufactures blood glucose meters. Each meter sells for $80 and has a variable cost of $20. There are $200,000 in fixed costs involved in the production process. (PLEASE SHOW YOUR WORK).
a) What is Merck’s operating profit (loss) when sales are 3,000 meters?
b) What is Merck’s operating profit (loss) when sales are 5,000 meters?
d) Merck's president would like an annual profit of $400,000. How many meters must be sold to attain this profit?
Problem 3
(See pages 126 – 145)
Assume that a radiologist group practice has the following cost structure:
Fixed costs
|
$200,000
|
Variable cost per procedure
|
$50
|
Charge (price) per procedure
|
$150
|
a. What is the group’s breakeven point in volume?
b. Complete the following table. (Hint: total costs= fixed costs + (variable cost per procedure x procedures)
Volume
(Procedures)
|
Fixed Costs
|
Total Costs
|
Total Revenue
|
0
|
|
|
|
250
|
|
|
|
500
|
|
|
|
750
|
|
|
|
1,000
|
|
|
|
1,250
|
|
|
|
1,500
|
|
|
|
1,750
|
|
|
|
2,000
|
|
|
|
2,250
|
|
|
|
2,500
|
|
|
|
2,750
|
|
|
|
3,000
|
|
|
|
c. Sketch out a breakeven graph depicting the BE point. See pages 127-128. (Hint: use Excel to produce the graph. When done, copy/paste the graph on the space provided below).