Build Income Statement for MS High-Tech Inc. from 2017 to 2020. Calculate Break-even points and conduct leverage analysis.
The facts of MS High-Tech Inc. in 2016:
Sales = 330,000 units; Annual sales (units) growth rate = 5%
Price per unit = $30, annual price growth rate is 2.8%
Variable costs as a percent of sales = 55%
Annual fixed costs = $ 2,200,000.
The annual depreciation expense is 11.8% of the annual fixed costs.
Annual interest expense = $ 385,000.
Annual preferred dividends = $ 300,000.
Common shares outstanding = 1,800,000 shares
Tax rate = 28%
You are expected to:
a) Enter the above data into the worksheet. Build Income Statement for MS High-Tech Inc. from 2017 to 2020.
b) Calculate annual operating break-even points (in both units and dollars) and cash Break-even points (in both units and dollars) for the firm.
c) Calculate DOL, DFL, and DCL for each of four years using their definitions.
d) Calculate DOL, DFL, and DCL for each of five years using alternative formulas – Equations (6-8), (6-10), and (6-12).
e) Create a chart that shows the various leverage measures (DOL, DFL, DCL) have declined as sales increases over the five-year period.
f) Discuss the major findings.