Question.3068 - 1. Given the following information: Total assets $100,000 Debt (12% interest rate) $80,000 Equity $20,000 Variable costs of production $14 per unit Fixed cost of production $27,000 Units Sold 12,300 Sales price $19.75 per unitWhat happens to operating income and net income if output is increased by 10 percent? Verify your answer. 2. A firm needs $100 to start and has the following expectations: Sales $200 Expenses $185 Tax rate 33% of earnings3. ? What are earnings if the owners invest the $100? ? If the firm borrows $40 of the $100 at an interest rate of 10%, what are the firm's net earnings? ? What is the return on the owners' investment in each case? Why do the returns differ? ? If expenses rise to $194, what will be the returns in each case? ? In which case did the returns decline more? ? What generalization can you draw from the above? 3. A firm with sales of $5,000 has the following balance sheet: Assets, Liabilities and Equity as of xx/xx/xx Assets Liabilities and EquityAccounts receivable $1,300 Accounts payable $1,200 Inventory 1,600 Long-term debt 2,500 Plant 1,700 Equity 900 Total $4,600 Total $4,600The firm earns 20 percent on sales and expects those sales to rise to $5,500. The increased sales may require additional financing. Accounts receivable and inventory will increase, and trade accounts will also spontaneously increase with the increase in sales. Management expects to distribute 75% of earnings. a. Determine the new balance sheet entries for those assets and liabilities that spontaneously change with the level of sales using the percent of sales technique. (Accounts receivable, inventory, and accounts payable vary with sales; the other entries do not). Round off to nearest percentage point, such as 22% or .22. b. Will the firm need external financing to achieve sales of $5,500? c. Construct the pro forma balance sheet for sales of $5,500. Any new financing should be obtained by issuing new longterm debt. Any excess funds should be held in cash.
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Ans xx the xxxxxx is xxxxxxxxx by xxxx the xxxxxxxxx income xxxx increase xx a xxxxxx percentage xx fixed xxxx will xxxxxx the xxxx Further xxx income xxxx increase xx even xxxxxx amount xx interest xxxxxx and xxx percentage xxxx also xxxxxx constant xxxxx is xxx calculation xx verify xxx answer xxxxxxx New xxxxxx Change xxxx Sale xxxxx Revenue xxxxx Cost xxxxxxxx Cost xxxxx Cost xxxxxxxxx income xxxx Interest xxx Assume x Net xxxxxx Ans x Earning xxxxx tax xxxxx ndash xxxxxxx ndash xxx rate x - xxxxxxx before xxx sales xxxxx expense x Borrowed xxxxxx Interest xxxxxxx sales xxxxx expense xxxxx interest xxxx - x c xxx for xx case xxx profit xxxxxxxxxx times xxx for xx case xxx profit xxxxxxxxxx times x If xxx expense xx Net xxxxxx in xx case xx Hence xxx is xx the xx case xxx income xx and xxx is x In xxxxx case xxx decrease xx RoI xxx and xx second xxxx the xxxxxxxx was xx the xxxxxxx was xxxx in xx case x As xxx expenses xxxxxxxx the xxx with xxxx capital xxxx decline xx a xxxxxx rate xxx a xxxxxxxx Receivable xxxxx Inventory xxxxx Accounts xxxxxxx Sales xxxx Sales xxxxx that xxx company xxxxx New xxxxx Thus xxxxx the xxxxxxxx in xxxxx the xxx Balance xxxxx Entries xxxxx beIncrease xxxxxxx Recivable xxxxxxxxx Accounts xxxxxxx Cost x Earnings xxxxxx Distributed xxxxxxxx Earnings xxxx retained xxxxxxxx for xxxxxxxx in xxxx for xxxx year xxx External xxxxxxxxx Thus xx can xxxxxxx that xxxxxxxx Financing xx not xxxxxxx Assets xxxxxxxxxxx and xxxxxx as xx xx xx xxAssets xxxxxxxxxxx and xxxxxx Accounts xxxxxxxxxx Accounts xxxxxxx Inventory xxxxxxxxx debt xxxxx Equity xxxx Total xxxxx nbsp xxxx Orignal xxx output xxxxxx Unit xxxx nbsp xxxx Price xxxx nbsp xxxxxxx nbsp xxxx nbsp xxxxx Cost xxxx nbsp xxxxxxxx Cost xxxx nbsp xxxxx Cost xxxx nbsp xxxx Operating xxxxxx EBIT xxxx nbsp xxxxxxxx nbsp xxxx Tax xxxxxxx Net xxxxxx nbsp xxxx nbsp xxxx nbsp xxxx -More Articles From Accounting
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