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Finger [1]
3 years ago
7

Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last y

ear). Prepare a contribution format income statement and compute the degree of operating leverage.
Business
1 answer:
Olin [163]3 years ago
3 0

Answer:

Instructions are listed below.

Explanation:

A Contribution Margin Income Statement is a special format of the income statement that segregates the variable and fixed expenses involved in running a business. It shows the revenue generated after deducting all variable and fixed expenses separately.

Sales=

Variable costs:

Cost of good sold=

Sales commissions=

Shipping expense=

Total variable cost (-)

Contribution margin=

Fixed costs:

Advertising expense=  

Shipping expense=

Administrative salaries=

Insurance expense=

Depreciation expense=

Total fixed cost= (-)

Net operating profit=

Degree of operating leverage= % change in EBIT/ % change in sales

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Miltmar Corporation will pay a year-end dividend of $3, and dividends thereafter are expected to grow at a constant rate of 5% p
motikmotik

Part a: The market capitalization rate is 9.25%

Part b: The intrinsic value of the stock is $70.59

Market capitalization rate is another name for the stock's required rate of return. It is called the market capitalization rate because we can infer it by observing the market value of the stock. One way to find this rate is the capital asset pricing model (CAPM).

Part a:

Let,

r = market capitalization rate

f = risk free rate = 5%

m = return on the market = 10%

We can find the market capitalization rate with the help of the capital asset pricing model (CAPM),

r=f+\beta *(m-f)\\ r=0.05+0.85*(0.1-0.05)\\ r=9.25\%\\

The market capitalization rate is 9.25%.

Part b:

Let,

D be the dividend expected = $3

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The price is given by the dividend growth model:

Price=\frac{D}{r-g}\\ Price=\frac{3}{0.0925-0.05}\\ Price=\$70.59\\

The intrinsic value of the stock is $70.59

Learn more about CAPM:

brainly.com/question/15548553

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