Test
1. Using the a
eviated income statement below for Wiley’s Outdoor Gear Corp. do the following:
A. The earnings per share
EPS 2019: $5.99
EPS 2018: $2.90
B. The degree of operating leverage (DOL)
DOL = 1.16 times
If sales are increased by 10%, operating income will increase by 11.6 times.
C. The degree of financial leverage (DFL)
DFL = 1.10 times,
Since, DFL includes EPS, which is more volatile, the lesser the DFL, the lesser is the sensivity.
D. The degree of combined leverage (DCL)
DCL = 1.28 times
If the company increases 5% of the sales, there increases 6.4% of EPS ( 5*1.18)
E. Discuss the results of your computations and what you think they say about Wiley’s Corporation
Wiley’s Outdoor Gear Corp.
A
eviated Income Statement
12/31/19
12/31/18
Total Sales Revenue
$2,386,444
$1,300,933
Cost of Goods Sold
XXXXXXXXXX,091
XXXXXXXXXX,119
Gross Profit
$1,898,353
$ 972,814
Operating Expenses
XXXXXXXXXX,855
XXXXXXXXXX,623
Operating Income
$1,826,498
$ 926,191
Interest and Taxes
XXXXXXXXXX,422
XXXXXXXXXX,165
Net Income
$1,198,076
$ 579,026
Common Shares of stock: 200,000 shares outstanding
2. Using the Balance Sheet for Wanderlust Travel Excursions and Memories business shown below, do the following.
A. Create a Pro Forma Balance Sheet for the following year using the percentage of sales method.
B. If next year’s sales forecast increases to $425,000, profit margin is 12%, and the owner payout ratio is 85%, what is required in new financing?
Wanderlust Travel Excursion and Memories
Pro Forma Balance Sheet
Total Sales Cu
ent Year $275,000
Percentage of Sales (%)
Forecast Sales Next Year $350,000
Assets
Cu
ent Assets
Cash
$ 5,694
Accounts Receivable
19,662
Inventory
3,381
Total Cu
ent Assets
$28,737
Fixed Assets
Furniture and Fixtures
$ 5,595
Transportation Equipment
25,456
Total Fixed Assets
$31,051
Total Assets
$59,788
Liabilities and Owners’ Equity
Cu
ent Liabilities
Notes Payable
$ 15,456
Accrued Taxes Payable
3,598
Total Cu
ent Liabilities
$ 19,054
Long Term Debt
18,654
Total Liabilities
$ 37,708
Owner’s Equity
22,080
Total Liabilities and Owner’s Equity
$ 59,788
3. The table below provides a list of sales figures for the previous year XXXXXXXXXXfor your mountain resort, which experiences consistent visitation throughout the year. You want to project a forecast for January of the following year XXXXXXXXXXYou want to select from 3 models to make your forecast: 1) a 3-month moving average; 2) a weighted moving average (you believe your weights should be 0.2, 0.3, & 0.5); and 3) an exponential smoothing model in which will use an = 0.2. Your forecast for January 2019 was $32,000.
A. Construct a table that shows each of these forecasts for the cu
ent year and provide the forecast for January of this coming year.
B. Using the data given, and your forecasts, which model do you think is the best model for your business? Why?
Month
Previous Year Sales in $
January 2019
$32,645
Fe
uary 2019
$31,456
March 2019
$30,270
April 2019
$33,129
May 2019
$34,456
June 2019
$35,256
July 2019
$36,218
August 2019
$35,456
September 2019
$34,250
October 2019
$32,156
November 2019
$30,125
December 2019
$32,275