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[answered] LEVERAGE AND CAPITAL STRUCTURE UBS Ltd makes latches that s


?LEVERAGE AND CAPITAL STRUCTURE

UBS Ltd makes latches that sell for $6.00. Each latch has variable operating costs of $3.50. Fixed operating costs are $50,000 per year. The firm pays $13,000 interest and preference dividends of $7,000 per year. Tax rate is 30%.

  • a) Calculate the operating break-even point.
  • b) Based on the firm?s current sales of 40,000 units per year and its interest and preference dividend costs, calculate its EBIT and net profit available for ordinary shareholders.
  • c) Calculate the DOL and explain what the result means.
  • d) Calculate the DFL and explain what the result means.
  • e)?Calculate?the?DTL?and?explain?what?the?result?means.

(a)

 

Sale Price

 

Variable Cost

 

Contribution Margin =

 

= 6

 

3.5

 

2.5 Fixed Cost = 50000 Break Even Point (in units) =

 

=

 

= Fixed Cost / Contribution Margin

 

50000 / 2.5

 

20000 Break Even Point (revenue) =

 

=...

 


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