Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
(Leverage and? EPS) You have developed the following pro forma income statement for your?corporation: Sales 45,750,000 Variable costs (22,800,000) Revenue before fixed costs 22,950,000 Fixed costs (9,200,000) EBIT 13,750,000 Interest expense (1,350,000) Earnings before taxes 12,400,000 Taxes (50%) (6,200,000) Net income 6,200,000 Question C-1
(Leverage and? EPS) You have developed the following pro forma income statement for your?corporation:
Sales
45,750,000
Variable costs
(22,800,000)
Revenue before fixed costs
22,950,000
Fixed costs
(9,200,000)
EBIT
13,750,000
Interest expense
(1,350,000)
Earnings before taxes
12,400,000
Taxes (50%)
(6,200,000)
Net income
6,200,000
Question C-1. If Sales should decrease by 25% and interest expense should decrease by 50%, the percentage change in net income % (Please round to two decimal places) *Also note if it is a positive or negative
Expert Solution
| Income Statement: | |||
| In case of decrease in sales and interest: | |||
| Particulars | Amount | Amount | |
| (Normal) | (Decrease) | ||
| Sales | 45750000 | 34312500 | =45750000*(1-25%) |
| Less: Variable Cost | 22800000 | 17100000 | =22800000*(1-25%) |
| Contribution Margin | 22950000 | 17212500 | |
| Less: Fixed Cost | 9200000 | 9200000 | |
| Earnings before Interest and Taxes (EBIT) | 13750000 | 8012500 | |
| Less: Interest | 1350000 | 675000 | =1350000*(1-50%) |
| Earnings before Taxes (EBT) | 12400000 | 7337500 | |
| Less: Taxes @ 50% | 6200000 | 3668750 | |
| Earnings after Taxes | 6200000 | 3668750 |
Computation of % Change in Net Income = (3668750-6200000)/6200000 = -40.83%
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
