Delsing Canning Company

September 6, 2019/in Questions Uploads /by Hannah Wangui

Question

Delsing Canning Company is considering an expansion of its facilities. Its current income statement

is as follows:


Sales	$	7,400,000
Variable costs (50% of sales)		3,700,000
Fixed costs		2,040,000
Earnings before interest and taxes (EBIT)	$	1,660,000
Interest (10% cost)		680,000
Earnings before taxes (EBT)	$	980,000
Tax (30%)		294,000
Earnings after taxes (EAT)	$	686,000
Shares of common stock		440,000
Earnings per share	$	1.56

The company is currently financed with 50 percent debt and 50 percent equity (common stock, par value of $10). In order to expand the facilities, Mr. Delsing estimates a need for $4.4 million in additional financing. His investment banker has laid out three plans for him to consider:

Sell $4.4 million of debt at 14 percent.
Sell $4.4 million of common stock at $20 per share.
Sell $2.20 million of debt at 13 percent and $2.20 million of common stock at $25 per share.

Variable costs are expected to stay at 50 percent of sales, while fixed expenses will increase to $2,540,000 per year. Delsing is not sure how much this expansion will add to sales, but he estimates that sales will rise by $2.20 million per year for the next five years.
Delsing is interested in a thorough analysis of his expansion plans and methods of financing.He would like you to analyze the following:

a. The break-even point for operating expenses before and after expansion (in sales dollars). (Enter your answers in dollars not in millions, i.e, $1,234,567.)

b. The degree of operating leverage before and after expansion. Assume sales of $7.4 million before expansion and $8.4 million after expansion. Use the formula: DOL = (S − TVC) / (S − TVC − FC). (Round your answers to 2 decimal places.)

c-1. The degree of financial leverage before expansion. (Round your answers to 2 decimal places.)

c-2. The degree of financial leverage for all three methods after expansion. Assume sales of $8.4 million for this question. (Round your answers to 2 decimal places.)

c. If stock could be sold at $20 per share due to increased expectations for the firm’s sales and earnings, what impact would this have on earnings per share for the two expansion alternatives? Compute earnings per share for each. (Round your answers to 2 decimal places.)

d. Compute EPS under all three methods of financing the expansion at $8.4 million in sales (first year) and $10.2 million in sales (last year). (Round your answers to 2 decimal places.)

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The Harding Company manufactures skates.

September 6, 2019/in Questions Uploads /by Hannah Wangui

Question

The Harding Company manufactures skates. The company’s income statement for 20X1 is as follows:

HARDING COMPANY
Income Statement
For the Year Ended December 31, 20X1
Sales (12,400 skates @ $98 each)	$	1,215,200
Variable costs (12,400 skates at $44)		545,600
Fixed costs		390,000
Earnings before interest and taxes (EBIT)	$	279,600
Interest expense		72,000
Earnings before taxes (EBT)	$	207,600
Income tax expense (40%)		83,040
Earnings after taxes (EAT)	$	124,560

a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)

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b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.)

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c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.)

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d. Compute the break-even point in units (number of skates). (Round your answer to the nearest whole number.)

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Case Study

September 6, 2019/in Questions Uploads /by Hannah Wangui

Question

Case Study: Your long-time friend Carl comes to you with a serious problem in his life. He is a

believer, and he wants your advice. For years he and his family have lived above their means. They did this by continually refinancing their house and rolling their credit card and other debt onto their home mortgage. However, now that real estate prices are no longer rising but actually falling, Carl can’t refinance anymore and can’t pay his monthly bills as they come due. He is in a real credit crisis. His creditors are calling him with threatening lawsuits, garnishments, and other unpleasant things. One of his friends at work said that he should file bankruptcy. He comes to you for advice from a Christian perspective. In particular, he wants to know:

1. Does the Bible forbid him to file bankruptcy?
2. Does the Bible forbid borrowing altogether? If not, when is it permissible to borrow money?

Use the words “ Forbids” or “Does not Forbid” in the subject line of your thread, depending upon your conclusion.

Must be at least 300 words with 2 works cited and in APA FORMAT.

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labor costs

September 6, 2019/in Questions Uploads /by Hannah Wangui

Question

The experience of many firms is that decreases in labor costs may:Decrease

productivity.Have no significant effect on productivity.First increase, and then decrease productivity.Increase productivity.Restrict productivity improvements.