Self-Test Problems

(Solutions in Appendix)

  1. Learning Goals 1, 2

    ST13–1 Breakeven point and all forms of leverage TOR most recently sold 100,000 units at $7.50 each; its variable operating costs are $3.00 per unit, and its fixed operating costs are $250,000. Annual interest charges total $80,000, and the firm has 8,000 shares of $5 (annual dividend) preferred stock outstanding. It currently has 20,000 shares of common stock outstanding. Assume that the firm is subject to a 40% tax rate.

    1. At what level of sales (in units) would the firm break even on operations (i.e., EBIT = $0)?

    2. Calculate the firm’s earnings per share (EPS) in tabular form at (1) the current level of sales and (2) a 120,000-unit sales level.

    3. Using the current $750,000 level of ...

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