ACC500A MIDTERM Q3

Particular Projected Current Period

Sales P 3,150,000 P 3,000,000
EBIT 300,000 200,0001.
EPS 1.20 0.202.
Expenses 2,950,0000 2,900,0003.
1. Degree of operating leverage (DOL) for the year
2. Degree of financial leverage (DFL) for the year

ABC Corp. has the following income statement for Year 1

Sales 2,000,000
Less: Variable Costs 1,200,000
Contribution Margin 800,000
Less: Fixed Costs 350,000
Operating Income 450,000
Less: Interest 250,000
200,000
Earnings before taxes
60,000
Less: Taxes
140,000
Net Income

3. Degree of combined leverage (DCL)

4. If EPS is P2.40, DCL is 6 times and DOL is 3 times. The projected EPS if operating income will increase by 140%.

5. The firm has 2.75 degree of operating leverage and 3.20 degree of financial leverage. At present, sales is P3
million and EPS is P2.50 per share. Next year’s sales will decline to 1.2 million while EBIT (operating loss) next year
will drop to negative P130,000. EBIT/(operating loss) this year would have been

6. Data for Year 1 and Year 2 follows:

Selling price Unit cost Unit sold
Year 2 P25 P15 125,000
Year 1 P28 P17 123,000
Cost volume variance is

7. Data for Year 1 and Year 2 follows:

Selling price Unit cost Unit sold
Year 2 P25 P15 125,000
Year 1 P28 P17 123,000
Sales price variance is

8. Sales volume variance is P640,000 F. Quantity sold in Year 1 and Year2 were 100,000 units and 120,000 units.
Sales price dropped by 12.5% in Year2. Sales price variance

Sales this year amounted to P980,000 which was increased by P180,000 form previous year. Cost of sales last year
was P600,000. Selling price dropped by 2% this year while unit cost rose by 4%.
9. The sales price variance would be
10. The cost volume variance would be

11. Sales P50,000,000, Average invested capital (assets) P20,000,000; Net income P2,000,000 and Cost of capital
8%. What is the interest rate spread of the entity?

12. Return on equity is 60%, return on sales is 5%, asset turnover is 8 times and cost of capital is 26%. Sales is P2.5
million. Residual income would be

The following are selected data for a corporation for the year just ended: Net operating profit before taxes
P31,250,000; Inventory P5 million; Long-term debt P40 million; Depreciation expense P9 million; Increase in
current assets P8 million; Increase in current liabilities P3 million; Capital expenditures P8 million; Shareholders’
equity P40 million; Invested capital P90 million; Weighted average cost of capital 10%; Interest rate 5%; and Tax
rate 20%.
13. Economic Value Added for the year would be
14. Free cash flow for the year would be

15. The company issued 1,000, P1,500 par value bonds for P1,480. Also, 2,500 of P1,000 par, 12% preference
shares were issued for P1,200 average market price. Finally, 10,000 of P100 par value ordinary shares were issued
for P140 average market price. This year, quoted prices at the securities market are: bonds at P1,550, preference
shares at P1,350 and ordinary shares at P135. Market value added would be
 Answer Key
1. 10 times
2. 10 times
3. 4 times
4. P9.12
5. P200,000
6. P34,000 UF
7. P375,000 UF
8. P480,000 UF
9. P20,000 UF
10. P150,000 UF
11. 2%
12. P43,750
13. P17 million
14. P19.4 million
15. P395,000