Change in operating income between two companies

Assignment Help Financial Management

Reference no: EM131620556

Your company, Martin Industries, Inc., has experienced a higher than expected demand for its new product line. The company plans to expand its operation by 25% by spending $5,000,000 for an additional building. The firm would like to maintain its 40% debt to total asset ratio in its capital structure and its dividend payout ratio of 50% of net income. Last year, net income was $2,500,000. Required: What are retained earnings for last year? How much debt will be needed for the new project? How much external equity must Martin use at the beginning of this year in order to finance the new expansion? If Martin decides to retain all earnings for the coming year, how much external equity will be required? Part Two: The Degree of Leverage Assume that two companies, Brake, Inc. and Carbo, Inc., have the following operating results: Brake, Inc. Carbo, Inc. Sales $300,000 $300,000 Variable Costs 60,000 180,000 Fixed Costs 210,000 90,000 Operating Income $30,000 $30,000 Required: Calculate the contribution margins for the two companies. Calculate the break-even point for each firm, in dollars and in units. Compare the two companies. What conclusions could you make regarding the use of operating leverage employed by the two firms? Assume that both companies experience an increase in sales by 15% next year. What would be the operating income for each firm net year? Explain the difference in the change in operating income between the two companies. Based on the information from the above questions, what recommendations would you make to the two companies and why?

Reference no: EM131620556

Questions Cloud

Discuss human resources department of your company : human resources department of your company always does a thorough search of social media sites of prospective hires

Design two state diagrams each for mealy and moore machines : Design two State Diagrams, each for Mealy and Moore machines, for a sequence detector that output a 1 when it detects final bit in the serial data stream, 1101.

Divide the partial dividend by the divisor : Divide the partial dividend by the divisor. Write this partial quotient above the rightmost digit of the partial dividend.

How are northerners portrayed by contrast : How are the lives of slaves depicted in both Grayson's poem and Dew's Defense? How are Northerners portrayed by contrast?

Change in operating income between two companies : Explain the difference in the change in operating income between the two companies.

Dominant european power in north america : After the Treaty of Paris, Britain became the dominant European power in North America.

How many stores got the special offer : The Gap purchased 5,184 pairs of blue jeans to be distributed evenly among 324 stores. How many pairs were sent to each store?

Cold war era was very dangerous : As we've seen throughout the term, the Cold War era was very dangerous. When the Soviet Union collapsed, it perhaps seemed as though the world became a safer.

Why did widespread interest in black consciousness : Why did widespread interest in black consciousness, black pride, and African roots develop among African Americans in the second half of the 1960s?

User Account

All Pages