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Chapter 16 CFIN5
Chapter 16 Solutions
16-1 The following table shows the initial forecast and the AFN:
Current Growth Initial Forecast
Total assets $800,000 x 1.20 $960,000
$800,000 $836,000
AFN $124,000
Sales $250,000 x 1.20 $300,000
Net profit margin 5.0% 5.0%
Net income $ 12,500 $ 15,000
Dividend payout ratio 60% 60%
Dividends $ 7,500 $ 9,000
16-2 The following table shows the initial forecast and the AFN:
Current Growth Initial Forecast
Total assets $400,000 x 1.15 $460,000
Accounts payable $125,000 x 1.15 $143,750
Notes payable 0 0
AFN $ 5,550
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Chapter 16 CFIN5
16-3
$810,000
Full capacity sales $900,000
0.90
= =
16-4
$5,400,000
Full capacity sales $9,000,000
0.60
= =
% increase in sales = ($9,000,000 - $5,400,000)/$5,400,000 = 0.66667 = 66.67%
16-5
OpBE
F $1,500
= = = 200 units
QP - V $25.00 $17.50-
SOpBE = 200 x $25 = $5,000 =
( )
()
F $1,500 $1,500
= =
$17.50
V0.30
1 - 1
P$25.00
-
16-6 a.
OpBE
F $600,000
= = = 6,000 units
QP - V $250 $150-
Chapter 16 CFIN5
b.
OpBE
F $900,000
= = = 45,000 units
QP - V $45 $25-
SOpBE = 45,000 x $45 = $2,025,000 =
( )
()
F $900,000 $900,000
= =
$25
V0.444444
1 - 1
P$45
-
16-8 Selling price = $575
Fixed operating costs = $690,000
Variable operating costs = 70% x Sales
a. Sales = 6,000 machines:
Gross profit 6,000[$575 $575(0.7)] $1,035,000
DOL 3.0
EBIT 6,000[$575 $575(0.7)] $690,000 $345,000
-
= = = =
- -
b. Sales = 9,000 machines:
Gross profit 9,000[$575 $575(0.7)] $1,552,500
DOL 1.8
EBIT 9,000[$575 $575(0.7)] $690,000 $862,500
-
= = = =
- -
c. Sales = 12,000 machines:
Gross profit 12,000[$575 $575(0.7)] $2,070,000
DOL 1.5
EBIT 12,000[$575 $575(0.7)] $690,000 $1,380,000
-
= = = =
- -
16-9 Selling price = $200
a.
OpBE
F $640,000
= = = 8,000 units
QP - V $200 $120-
Chapter 16 CFIN5
c.
OpBE
F $640,000
= = = 6,400 units
QP - V $220 $120-
16-10 Selling price = $1,400
Fixed operating costs = $420,000
Variable operating costs = 80% of sales
a.
OpBE
F $420,000
= = = 1,500 units
QP - V $1,400 $1,400(0.8)-
SOpBE = 1,500 x $1,400 = $2,100,000 =
( )
( )
F $420,000 $420,000
= =
V 1 0.80 0.20
1 - P-
b. ODM: Sales = 2,000 units
=
-
= = = =
- -
Q 2,000
Gross profit 2,000[$1,400 $1,400(0.8)] $560,000
DOL 4.0
EBIT 2,000[$1,400 $1,400(0.8)] $420,000 $140,000
Sales = 2,000 x $1,400 $2,800,000
Variable CGS = 2,000 x ($1,400)(0.8) (2 ,240,000)
Gross profit $ 560,000
Fixed operating costs ( 420 ,000)
EBIT = NOI $ 140,000
CWI: Sales = 2,500 units
=
-
= = = =
- -
Q 2,500
Gross profit 2,500[$1,400 $1,400(0.8)] $700,000
DOL 2.5
EBIT 2,500[$1,400 $1,400(0.8)] $420,000 $280,000
Sales = 2,500 x $1,400 $3,500,000
Variable CGS = 2,500 x ($1,400)(0.8) (2 ,800,000)
Gross profit $ 700,000
Fixed operating costs ( 420 ,000)
EBIT = NOI $ 280,000
NOICWI > NOIODM, which shows that ODM is operating closer to its operating breakeven point.
ODM’s higher DOL indicates that it is operating closer to its operating breakeven point.
16-11 EBITFinBE = $100,000(0.10) + $240,000(0.08) = $10,000 + $19,200 = $29,200
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Chapter 16 CFIN5
16-12 Interest = $15,000(0.09) + $48,000(0.06) = $1,350 + $2,880 = $4,230
16-13 a. EBIT $99,000
Interest (33 ,000)
Chapter 16 CFIN5
a.
(EBIT I)(1 T) ($2,250 $1,000)(1 0.4) $750
EPS $1.50
# common shares 500 500
- - - -
= = = =
b.
EBIT $2,250
DFL 1.8
EBT $2,250 $1,000
= = =
-
16-16 DOL = 3.5
DFL = 2.0
a. DTL = DOL x DFL = 3.5 x 2.0 = 7.0
b. If sales are 5 percent lower than expected,
16-17 DFL = 4.0
DTL = 10.0
Sales = $600,000
Profit margin = 8%
a. DTL = DOL x DFL
b. Forecasted net = $600,000 x 0.08 = $48,000
16-18 Sales = $400,000
EBIT = $125,000
DOL = 2.0
DFL = 4.0
EPS = $2.50
If sales turn out to be $360,000 rather than $400,000, actual sales will be 10 percent lower than
expected:
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Chapter 16 CFIN5
16-19 Selling price = $180
Variable cost per unit = $135
Fixed operating costs = $371,250
Chapter 16 CFIN5
Gross profit 65,000($10.00 $7.50) $162,500
DTL 6.5 2.6 2.5
EBT 65,000($10.00 $7.50) $100,000 $37,500 $25,000
-
= = = = = ´
- - -
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
