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Verdich [7]
3 years ago
11

Ornaments, Inc., is an all-equity firm with a total market value of $531,000 and 19,600 shares of stock outstanding. Management

believes the earnings before interest and taxes (EBIT) will be $74,700 if the economy is normal. If there is a recession, EBIT will be 15 percent lower, and if there is a boom, EBIT will be 25 percent higher. The tax rate is 34 percent. What is the EPS in a recession
Business
1 answer:
Anna35 [415]3 years ago
3 0

Answer:

The EPS in recession is 2.14 $/share.

Explanation:

If there is a recession, EBIT will be 15% lower than $74,700.

That means an EBIT of $74,700*(1-0.15)=$63,495.

The net income that will be paid in dividends is

Net income = EBIT*(1-tax rate) = $ 63,495 * (1-0.34) = $ 41,906.7

If there are 19,600 shares of stock outstanding and no preferred dividends, the EPS can be calculated as

EPS = (Net dividend pay / common shares) = 41,906.7 / 19,600

EPS = 2.14 $/share.

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2 years ago
Contribution Margin Ratio, Variable Cost Ratio, Break-Even Sales Revenue The controller of Ashton Company prepared the following
iren [92.7K]

Answer:

1.  73 %

2. 27 %

3. $60,000

4. Ways to increase projected operating income without increasing total sales revenue :

  1. Reduce the variable costs per unit
  2. Reduce fixed overheads

Explanation:

Contribution Margin Ratio = Contribution / Sales × 100

Where,

Contribution = Sales - Variable Costs

                     = $88,000 - $23,760

                     = $64,240

Then,

Contribution Margin Ratio = $64,240/ $88,000 × 100

                                           = 73 %

Variable Cost Ratio = Variable Cost / Sales × 100

                                = $23,760 / $88,000 × 100

                                = 27 %

Break-even sales revenue = Fixed Costs ÷  Contribution Margin Ratio

                                            = $43,800 ÷ 0.73

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<u>Ways to increase projected operating income without increasing total sales revenue :</u>

  1. Reduce the variable costs per unit
  2. Reduce fixed overheads
7 0
2 years ago
Cybernet Systems is a​ start-up company that makes connectors for​ high-speed Internet connections. The company has budgeted
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Answer:

$10,950 Unfavorable

Explanation:

For computation of flexible budget variance for total costs first we need to find out the standard cost which is shown below:-

Standard cost = (Sold connectors × budgeted variable costs) + Fixed costs per month

= (77 × $150) + $5,500

= $11,550 + $5,500

= $17,050

Flexible budget variance for total costs = Actual cost - Standard cost

= $28,000 - $17,050

= $10,950 Unfavorable

8 0
3 years ago
Delux Technologies makes and sells only one product, a high-quality processor for mainframe computers. Delux was recently approa
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Answer:

Imagination Station is engaging in Vertical Integration.

Explanation:

Vertical Integration is a business strategy whereby a firm acquires businesses that provide the supplies it needs to make its products or that makes and sell its products.

In this context, Delux Technologies makes and sells only one product, a high-quality processor for mainframe computers and was approached by Imagination Station, a large computer manufacturer about purchasing their company.

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