Question: Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes).
Required: 1. Compute times interest earned for Ace Company.
2. Compute times interest earned for Deuce Company.
3. What happens to each company's net income if sales increase by 30%?
4. What happens to each company's net income if sales increase by 50%?
5. What happens to each company's net income if sales increase by 80%?
6. What happens to each company's net income if sales decrease by 10%?
7. What happens to each company's net income if sales decrease by 20%?
8. What happens to each company's net income if sales decrease by 40%?
Analysis Component
9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two companies and the ratio values you computed in parts 1 and 2.