Key Chapter 14 homework
2.ANS: C
4.ANS: B
10. ANS:D
11. ANS:C
12. ANS:D or B
13.ANS:B is the best answer
57.ANS:C
New debt = 3,000(.4) = 1,200
Interest expense after tax = 1200(.1)(.6) = 72
New EAT = 600 – 72 = 528
Shares retired = 1200/10 = 120
New shares = 300 – 120 = 180
New EPS = 528/180 = $2.93
Assume the following facts about a company:
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40%Capital (000’s) / 40% / EBIT (000’s) / $1,000 / 1000
Debt / — / 1200 / Less Interest Expense / — / -120
Equity / $3,000 / 1800 / EBT / $1,000 / 880
Total Capital = totalAssets / $3,000 / 3000 / Taxes @ 40% / 400 / -352
Shares @ $10 / 300 / 180 / Earnings after Tax / $ 600 / 528
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61. ANS:A
1(1 – .35)/10 = 6.5%
63. ANS:C
Interest = 15(.08) = $1.2M
DFL = 3.6/(3.6 – 1.2) = 3.6/2.4 = 1.5
64.ANS:C
I = 5,000(.12),=,600
DFL =EBIT/[EBIT – I] = 1500/(1500-600) = 1.67
% change in EPS = DFL % change in EBIT = 1.667(20%) = 33.34%
New EPS = $2.35(1 – .3334) = $1.57
65. ANS:D
EBIT = 9M – (.7)9M – 1.26M = 1.44M
Interest = 6M(.09) = .54M
DFL = $1,440,000/[$1,440,000 – $540,000]
= 1.60
67.ANS:B
$10/$25 = 40%
69. ANS:A
Contribution = Ct = P – V = 24 – 18 = 6
B/E = FC/[P – V] = 2500/6 = 417 units
70. ANS:C
Contribution = Ct = P – V = 24 – 18 = 6
Annual fixed costs = 2500(12) = $30,000
B/E = FC/[P – V] = 30,000/6 = 5,000 units
72. ANS:C
30,000/5 = 6,000
6,000 25 = $150,000
75.ANS:C
DOL = 22%/15% = 1.47
76.ANS:D
DOL = Q(P – V)/[Q(P – V) – FC] = 40,000(6)/[40,000(6) – 180,000]
= 240,000/60,000 = 4.00
80. ANS:C
100/8=12.5%
81. ANS:A
% change EPS = 3.00(20%) = 60%
82. ANS:A
DOL = [32.2M – .3(32.2M)]/{[32.2M – .3(32.2M)] – 20.8M} = 12.95
EBIT = 32.2M – .3(32.2M) – 20.8M = 1.74M
Interest = 10M(.09) = .9M
DFL = 1.74M/[1.74M – .9M] = 2.07
DTL = 12.95 2.07 = 26.8
85. ANS:C
2 2.5 =5
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