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# BOOK Foundations of Financial Management 16th HW-Chapter 5Please complete this assignment and submit this same document with your answers via the provided link. Your assignment will be electronically...

BOOK Foundations of Financial Management 16th HW-Chapter 5Please complete this assignment and submit this same document with your answers via the provided link. Your assignment will be electronically compared against student repository and website content by TurnitinÂ®. Cases of plagiarism will be shared with the program director. Please see section 3.5 of the class syllabus for more information concerning plagiarism. Please, do not alter this document and do not forget to type your name in the space provided below.

Name __________________________________________________________

Problem 1 (See pages 126 â€“ 145)

A new Covid19 testing devise has been developed by Medical Electronics Corporation. It is estimated that variable operating costs will be 60% of sales (or \$60 per unit), while fixed operating costs will be \$100,000. The first year's sales estimates are 10,000 units at \$100 per unit. The cost of the manufacturing facility was financed with debt, the interest expense associated with that debt for the first year is expected to be \$20,000. Assume an income tax rate of 30%. The company will not develop or sell any other product soon. (PLEASE SHOW YOUR WORK).

a) Construct Medical Electronics Corporationâ€™s projected income statement for the first year of operation (complete the following table).

 Sales Less: Variable operating costs Fixed operating costs Earnings before interest and taxes (EBIT) Less: Interest expense Earnings before taxes (EBT) Less taxes (30%) Earnings after taxes (EAT)

b) Compute the first year expected degree of operating leverage (DOL)

c) Interpret the calculated degree of operating leverage. See textbook, page 132.

d) Compute the Operating Break-even point in quantity.

Problem 2 (See pages 126 â€“ 145)

Merck Corporation manufactures blood glucose meters. Each meter sells for \$80 and has a variable cost of \$20. There are \$200,000 in fixed costs involved in the production process. (PLEASE SHOW YOUR WORK).

a) What is Merckâ€™s operating profit (loss) when sales are 3,000 meters?

b) What is Merckâ€™s operating profit (loss) when sales are 5,000 meters?

d) Merck's president would like an annual profit of \$400,000. How many meters must be sold to attain this profit?

Problem 3 (See pages 126 â€“ 145)

Assume that a radiologist group practice has the following cost structure:

 Fixed costs \$200,000 Variable cost per procedure \$50 Charge (price) per procedure \$150

a. What is the groupâ€™s breakeven point in volume?

b. Complete the following table. (Hint: total costs= fixed costs + (variable cost per procedure x procedures)

 Volume (Procedures) Fixed Costs Total Costs Total Revenue 0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000

c. Sketch out a breakeven graph depicting the BE point. See pages XXXXXXXXXXHint: use Excel to produce the graph. When done, copy/paste the graph on the space provided below).

Answered Same Day May 29, 2021

## Solution

Rishi answered on May 29 2021
Sheet1
Problem 1
Variable Operating cost    60%
Fixed operating cost    100000
Sales price    100
Estimated sales    10000
Intersest expense    20000
Tax    30%
a)    PROJECTED INCOME STATEMENT
Particular    Amount
Sales    1000000
less: Variable operating cost    600000
Fixed operating cost    100000
Earnings before interest and taxes (EBIT)    300000
Less: Interest    20000
Earnings before taxes (EBT)    280000
Less:Taxes    84000
Earnings after taxes (EAT)    196000
b)    Degree of operating leverage =    Change in EBIT/Change in sales
=    300000/1000000
=    0.3
c)    Degree of operating leverage measure that how much the Earning befor interest and taxes or operating margine change as a result of change in sales
d)    Operating
eak even point =    fixed cost/contribution per unit
Fixed cost =    100000
Contribution per unit =    (Sales-variable cost)/No of units...
SOLUTION.PDF