Compute their break-even point in dollars

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Reference no: EM133332231

Question: Baskin and Robinson are considering the possibility of opening their own manufacturing facility. They expect first-year sales to be $800,000, and they feel that their variable costs will be approximately 40% of sales. Their fixed costs in the first year will be $200,000. Baskin and Robinson are considering two ways of financing the firm: (plan a) 40% equity financing and 60% debt at 10%, or (plan b) 100% equity financing. They can sell common stock to their relatives for $10 per share. Either way, they will need to raise $1,000,000.

a. Compute their contribution margin (CM) and earnings before interest and taxes (EBIT).

b. Compute their break-even point in dollars.

c. Calculate the Degree of Operating Leverage at the expected first-year sales volume.

d. Calculate the Degree of Financial Leverage and the Degree of Combined Leverage under each of the possible financing plans.

Reference no: EM133332231

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