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Imagine that you were hired recently as a financial analyst…

Customer Question
Imagine that you were...

Imagine that you were hired recently as a financial analyst for a relatively​ new, highly leveraged ski manufacturer located in the foothills of​ Colorado's Rocky Mountains. Your firm manufactures only one​ product, a​ state-of-the-art snow ski. Up to this point the company has been operating without much quantitative knowledge of the business and financial risks it faces.
Ski season just​ ended, however, so the president of the company has started to focus more on the financial aspects of managing the business. He has set up a meeting for next week with the​ CFO, Maria​ Sanchez, to discuss matters such as the business and financial risks faced by the company.
​Accordingly, Maria has asked you to prepare an analysis to assist her in her discussions with the president. As a first step in your​ work, you compiled the information in the popup​ window, LOADING...​, regarding the cost structure of the​ company:
As the next​ step, you need to determine the​ break-even point in units of output for the company. One of your strong points has been that you always prepare supporting work papers that show how you arrived at your conclusions. You know Maria would like to see these work papers to facilitate her review of your work.​ Therefore, you will have the information you require to prepare an analytical income statement for the company. You are sure that Maria would also like to see this statement. In​ addition, you know that you need it to be able to answer the following questions. You also know Maria expects you to​ prepare, in a format that is presentable to the​ president, answers to the following questions to serve as a basis for her discussions with the president.
a. What is the​ firm's break-even point in sales​ dollars?
b. If sales should increase by 2020 percent​ (as the president​ expects), by what percentage would EBT​ (earnings before​ taxes) and net income​ increase?
c. Prepare another income​ statement, this time to verify the calculations from part ​(b​).

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A. Before you can compute the​ firm's break-even point in sales​ dollars, you need to compute some items on the​ firm's income statement.
The​ firm's operating assets are ​$3 comma 600 comma 0003,600,000 and the operating asset turnover is 88 times. What are the​ firm's sales​ revenues?
​$
nothing  ​(Round to the nearest​ dollar.)
The​ firm's operating assets are ​$3 comma 600 comma 0003,600,000 and the return on operating assets is 3333​%. What is the​ firm's EBIT?
​$
nothing ​(Round to the nearest​ dollar.)
Given the degree of operating leverage of 77 times the sales and EBIT computed in previous​ steps, what are the​ firm's total variable​ costs?
​$
nothing ​ (Round to the nearest​ dollar.)
Based on the computed​ sales, EBIT, and variable​ costs, what are the​ firm's total fixed​ costs?
​$
nothing  ​(Round to the nearest​ dollar.)
Compute the​ EBT, taxes, and net income to complete the following income statement.  ​(Round up all items to the nearest​ dollar.)
Sales revenues
$28,800,000
Less: Variable costs
20,484,000
Less: Fixed costs
7,128,000
Equals: EBIT
$1,188,000
Less: Interest expense
540,000
Equals: EBT
Less: Taxes (28%)
Equals: Net income
What is the​ firm's break-even point in sales​ dollars?
​$
nothing  ​(Round to the nearest​ dollar.)
b. If sales should increase by 2020 percent​ (as the president​ expects), by what percentage would EBT​ (earnings before​ taxes) and net income​ increase?nothing​% ​(Round to the nearest whole​ percent.)
c. Prepare another income statement to verify the calculations from part ​(b​).
If sales should increase by 2020 ​percent, what will the forecast level of sales revenues​ be?
​$
nothing  ​(Round to the nearest​ dollar.)
Since variable costs will also increase by 2020 ​percent, what is the forecast level of variable​ costs?
​$
nothing  ​(Round to the nearest​ dollar.)
Complete the following income statement after the increase in sales.  ​(Round up all items to the nearest​ dollar.)
Sales revenues
$34,560,000
Less: Variable costs
24,580,800
Less: Fixed costs
7,128,000
Equals: EBIT
Less: Interest expense
540,000
Equals: EBT
Less: Taxes (28%)
Equals: Net income
Using the EBT from the two income​ statements, what is the percentage change in the​ EBT?nothing​% ​(Round to the nearest whole​ percent.)

Submitted: 2 months ago.Category: Essays
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Customer reply replied 2 months ago
a. Before you can compute the​ firm's break-even point in sales​ dollars, you need to compute some items on the​ firm's income statement.
The​ firm's operating assets are ​$3 comma 600 comma 0003,600,000 and the operating asset turnover is 88 times. What are the​ firm's sales​ revenues?
​$
nothing  ​(Round to the nearest​ dollar.)
The​ firm's operating assets are ​$3 comma 600 comma 0003,600,000 and the return on operating assets is 3333​%. What is the​ firm's EBIT?
​$
nothing ​(Round to the nearest​ dollar.)
Given the degree of operating leverage of 77 times the sales and EBIT computed in previous​ steps, what are the​ firm's total variable​ costs?
​$
nothing ​ (Round to the nearest​ dollar.)
Based on the computed​ sales, EBIT, and variable​ costs, what are the​ firm's total fixed​ costs?
​$
nothing  ​(Round to the nearest​ dollar.)
Compute the​ EBT, taxes, and net income to complete the following income statement.  ​(Round up all items to the nearest​ dollar.)  
Sales revenues
$28,800,000
Less: Variable costs
20,484,000
Less: Fixed costs
7,128,000
Equals: EBIT
$1,188,000
Less: Interest expense
540,000
Equals: EBT
Less: Taxes (28%)
Equals: Net income
What is the​ firm's break-even point in sales​ dollars?
​$
nothing  ​(Round to the nearest​ dollar.)
b. If sales should increase by 2020 percent​ (as the president​ expects), by what percentage would EBT​ (earnings before​ taxes) and net income​ increase?nothing​% ​(Round to the nearest whole​ percent.)
c. Prepare another income statement to verify the calculations from part ​(b​).
If sales should increase by 2020 ​percent, what will the forecast level of sales revenues​ be?
​$
nothing  ​(Round to the nearest​ dollar.)
Since variable costs will also increase by 2020 ​percent, what is the forecast level of variable​ costs?
​$
nothing  ​(Round to the nearest​ dollar.)
Complete the following income statement after the increase in sales.  ​(Round up all items to the nearest​ dollar.)
Sales revenues
$34,560,000
Less: Variable costs
24,580,800
Less: Fixed costs
7,128,000
Equals: EBIT
Less: Interest expense
540,000
Equals: EBT
Less: Taxes (28%)
Equals: Net income
Using the EBT from the two income​ statements, what is the percentage change in the​ EBT?nothing​% ​(Round to the nearest whole​ percent.)
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12/23/2017
Business Tutor: Jawaad Ahmed, Other replied 2 months ago
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