Assignment
8.1: Warm-Up Exercises, Chapter 13
E13-1
Canvas Reproductions has fixed operating costs of $12,500 and variable
operating costs of $10 per unit and sells its paintings for $25 each. At what
level of unit sales will the company break even in terms of EBIT?
E13-2
The Great Fish Taco Corporation currently has fixed operating costs of $15,000,
sells its premade tacos for $6 per box, and incurs variable operating costs of
$2.50 per box. If the firm has a potential investment that would simultaneously
raise its fixed costs to $16,500 and allow it to charge a per-box sale price of
$6.50 due to better-textured tacos, what will the impact be on its operating
breakeven point in boxes?
E13-3
Chico's has sales of 15,000 units at a price of $20 per unit. The firm incurs
fixed operating costs of $30,000 and variable operating costs of $12 per unit.
What is Chico's degree of operating leverage (DOL) at a base level of sales of
15,000 units?
E13-4
Parker Investments has EBIT of $20,000, interest expense of $3,000, and
preferred dividends of $4,000. If it pays taxes at a rate of 38%, what is
Parker's degree of financial leverage (DFL) at a base level of EBIT of $20,000?
E13-5
Cobalt Industries had sales of 150,000 units at a price of $10 per unit. It
faced fixed operating costs of $250,000 and variable operating costs of $5 per
unit. The company is subject to a tax rate of 38% and has a weighted average
cost of capital of 8.5%. Calculate Cobalt's net operating profits after taxes
(NOPAT), and use it to estimate the value of the firm.
SOLUTION
PREVIEW
E13-1
Canvas Reproductions has fixed operating costs of $12,500 and variable
operating costs of $10 per unit and sells its paintings for $25 each. At what
level of unit sales will the company break even in terms of EBIT?
The operating breakeven point is the level of sales at which all
fixed and variable operating costs are covered and EBIT is equal to $0.
Q = FC /(P – VC)
