neil dela pena

financial management
bsa4
PRESENT PROPOSED DIFFRENCE
PRODUCTION 5000 7000 2000
P/UNIT 100 95 5
SALES 500000 665000
F/COST 200000 250000 50000
EQUITY 500000 900000 400000
DEBT 0 0
EBIT 500000 900000
VC 50 10 40

CHANGE IN REVENUE IF PRODUCTION IS INCREASE

SALES REVENUE 2000 UNIT 95 190000
SALES DUE TO DECREASE SELLING PRICE 5000 5 25000
VCOST PROPOSED 5000 10 50000
ACTUAL 2000 40 80000
FIXED COST 50000
85000
DESIRED INCREASED IN EBIT 900000 500000 400000
Mang Asar Inc, SHOULD MAKE THE CHANGE TO MEET THE DESIRED EBIT

(SP-VC)U/SOLD-FC=EBIT
(100-N)5000-200000=50000
500000-50000N-200000=50000
250000=50000N
N=50

7000(95-40) 5000(100-50)
2.85 5
7000(95-40)-250000 5000(50)-20000
OPER.LEVERAGE DECREASE FROM 5-2.85

250000/(95-40)=4545 UNITS

NET PROFIT MARGIN=NET INC./REVENUE

400000*.1=40000
135000+40000/7000X95=.251
ASSET TURN OVER=REVENUE/ASSET
665000/900000=.739

ASSET/SHE (AS MULTIPLIER)

900000/500000=1.8
ROA=.251X.739X1.8=.334 OR 33.4

Mang Asar Inc should opt to finace the 400k additional source of capital from debt source since ROA is only 10%.

email:karenmdlrc@gmail.com
REMARK
INCREASE
DECREASE

UP
UP

LESS

LESS
LESS
is only 10%.
neil dela pena
financial management
bsa4

SHARES OUTSTANDING 600,000

RS 0.15
DEBT 2,000,000.00
EBIT 4,000,000
Interest = 2,000,000 x 10% = 200,000
EBT 3,800,000.00
NET PROFIT (1-35)X3,800,000 2,470,000
A. EPS 4.12 ALSO EQUAL TO DIVIDENDS
PRICE PER SHARE 27.44
TOTAL EQUITY 16,466,667
TOTAL DEBT 2,000,000
TOTAL FIRM 18,466,667
B. WACC 10% x 10.83% x( 1-35%) + 15% x 89.17% = 14.08%
C.
TOTAL EQUITY 16,466,667
LESS: 8,000,000
TOTAL 8,466,667
ALSO 10,000,000
D.
12% x 54.14% x( 1-35%) + 17% x 45.86% = 12.02%
E.
They should change capital structure as WACC declines by over 2% and hence, the value of the firm will increase.
value of the firm will increase.