Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Your company, Martin Industries, Inc., has experienced a higher than expected demand for its new product line. The company plans to expand its operation by 25% by spending $5,000,000 for an additional building.

The firm would like to maintain its 40% debt to total asset ratio in its capital structure and its dividend payout ratio of 50% of net income. Last year, net income was $2,500,000.

Required:

What are retained earnings for last year?

How much debt will be needed for the new project?

How much external equity must Martin use at the beginning of this year in order to finance the new expansion?

If Martin decides to retain all earnings for the coming year, how much external equity will be required?
Part Two: The Degree of Leverage

Assume that two companies, Brake, Inc. and Carbo, Inc., have the following operating results:

Brake, Inc.
Carbo, Inc.

Sales
$300,000
$300,000

Variable Costs
60,000
180,000

Fixed Costs
210,000
90,000

Operating income
$30,000
$30,000

Required:

find out the contribution margins for the two companies.
find out the break-even point for each firm, in dollars and in units.
Compare the two companies. What conclusions could you make regarding the use of operating leverage employed by the two firms?
Assume that both companies experience an increase in sales by 15% next year. What would be the operating income for each firm net year? describe the difference in the change in operating income between the two companies.

Based on the information from the above problems, what recommendations would you make to the two companies and why?

Deliverables:

Submit your findings from Parts One and Two above in a Microsoft Excel Show all your calculations.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M925589

Have any Question? 


Related Questions in Basic Finance

How do options on futures differ from options on the asset

How do options on futures differ from options on the asset underlying the futures? The open interest in a futures contract changes from day to day. Suppose that investors holding long positions are divided into two group ...

1 create an individual or family plan using the guidance

1. Create an individual or family plan using the guidance provided in FEMA's Are You Ready publication ( http://www.fema.gov/areyouready/ ). Did you find any shortfalls in this program? What did you learn by using the pu ...

Firm x has a proposed project that will generate sales of

Firm X has a proposed project that will generate sales of 2,750 units at a selling price of $36 each. The fixed costs are $18,000 and the variable costs per unit are $21. The project requires $36,000 of fixed assets that ...

What is diversifiable risk what is the role of

What is diversifiable risk? What is the role of diversification in the capital asset pricing model? If investors are risk averse, which would they prefer: a stock with an expected return of 5% with a beta of 1.2 or a sto ...

1 are inventory ratios meaningful for utilities why2 what

1. Are inventory ratios meaningful for utilities? Why? 2. What does the funded debt to operating property ratio measure for a utility? 3. Is times interest earned meaningful for utilities? Why or why not? 4. For regulate ...

1 a present an argument for why translation exposure is

1 .(a) Present an argument for why translation exposure is relevant to an MNC. (b) Present an argument for why translation exposure is not relevant to an MNC. 2 .Walt Disney Inc built the EuroDisney theme park in France ...

Discussion questionliabilities please respond to the

Discussion Question "Liabilities" Please respond to the following: • Let's use this discussion to study bonds together. Assume the following information for a bond issue: ABC Company issues the bonds at a face value of $ ...

1 why can the current movement toward establishing supply

1. Why can the current movement toward establishing supply chains be characterized as a revolution? 2. Compare the concept of a modern supply chain with more traditional distribution channels. Be specific regarding simil ...

1 why do researchers use factor analysis2 imagine that you

1. Why do researchers use factor analysis? 2. Imagine that you conducted a factor analysis on a set of variables that were uncorrelated with one another. How many factors would you expect to find? Why?

1 what does a deficiency judgment mean2 what is a land

1. What does a deficiency judgment mean? 2. What is a land contract? 3. How can mechanics' liens achieve priority over first mortgages that were recorded prior to the mechanics' lien?

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen