Management?

Question 1



Milwaukee Melon Manufacturers sells exotic melons at one price, Rs.10 each. The firm has variable costs of Rs. 160,000 on sales of 32,000 melons. Fixed costs are Rs. 80,000. Operating income (EBIT) this year is Rs. 80,000 and after-tax net income is Rs. 30,000. Interest expense is Rs. 20,000. (5)

a. What is its degree of financial leverage at the current level of EBIT?

b. Suppose that EBIT were to decline 10 percent next year. What would be the percentage decline in earnings per share (EPS)?



Question 2



ABC gearing limited has a degree of 2 at its current production and sales level of 10,000 units. The resulting operating income figure is Rs. 1,000. (5)



a. If sales are expected to increase by 20% from the current 10,000 unit, sale position, what would be the resulting operating profit figure?

b. At the company鈥檚 new sale鈥檚 position of 12,000 units, what is the company鈥檚 new DOL figure?Management?
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