Problem - Leverage analysis: you have developed the following income statement for your corporation. It represents the most recent year's operations, which ended yesterday.
|
Sales
|
$45,750,000
|
|
Variable costs
|
22,800,000
|
|
Revenue before fixed costs
|
$22,950,000
|
|
Fixed costs
|
9,200,000
|
|
EBIT
|
$13,750,000
|
|
Interest expense
|
1,350,000
|
|
Earnings before taxes
|
$12,400,000
|
|
Taxes at 50%
|
6,200,000
|
|
Net income
|
$6,200,000
|
Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:
a. What is the firm's break-even point in sales dollars?
b. If sales should increase by 25 percent, by what percent would earnings before taxes (and net income) increase?