Question Details

What will be the firm's expected EBIT in one year 



 .	PQR Manufacturing Corporation has $1,500,000 in debt outstanding. The company's before-tax cost of debt is 10 percent.  Sales for the year totaled $3,500,000 and variable costs were 60 percent of sales. Net income was equal to $600,000 and the company's tax rate was 40 percent. If PQR's degree of total leverage is equal to 1.40, what is its degree of operating leverage?
a.	1.15
b.	1.00
c.	1.22
d.	1.12
e.	2.68
 .	Coats Corp. generates $10,000,000 in sales.  Its variable costs equal 85 percent of sales and its fixed costs are $500,000.  Therefore, the company- operating income (EBIT) equals $1,000,000.  The company estimates that if its sales were to increase 10 percent, its net income and EPS would increase 17.5 percent.  What is the company- interest expense?  (Assume that the change in sales would have no effect on the company- tax rate.)
a.	$100,000
b.	$105,874
c.	$111,584
d.	$142,857
e.	$857,142
 .	Alvarez Technologies has sales of $3,000,000.  The company- fixed operating costs total $500,000 and its variable costs equal 60 percent of sales, so the company- current operating income is $700,000.  The company- interest expense is $500,000.  What is the company- degree of total leverage (DTL)?
a.	1.714
b.	3.100
c.	3.250
d.	3.500
e.	6.000
 .	Bell Brothers has $3,000,000 in sales.  Its fixed costs are estimated to be $100,000, and its variable costs are equal to fifty cents for every dollar of sales.  The company has $1,000,000 in debt outstanding at a before-tax cost of 10 percent.  If Bell Brothers' sales were to increase by 20 percent, how much of a percentage increase would you expect in the company's net income?
a.	15.66%
b.	18.33%
c.	19.24%
d.	21.50%
e.	23.08%
 .	Assume that a firm currently has EBIT of $2,000,000, a degree of total leverage of 7.5, and a degree of financial leverage of 1.875.  If sales decline by 20 percent next year, then What will be the firm's expected EBIT in one year ?
a.	$2,400,000
b.	$1,600,000
c.	$  400,000
d.	$3,600,000
e.	$1,350,000




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