Income Statement 2013 $7.000.000 Sales credit) 2.100.000 Fixed costs 4,200,000 v

ID: 2652916 • Letter: I

Question

Income Statement 2013 $7.000.000 Sales credit) 2.100.000 Fixed costs 4,200,000 variable costs 600 700,000 Earnings before interest and taxes 250,000 Less: interest 450,000 Earnings before taxes 157,500 Taxes a 35% Less: 292,500 Earnings after taxes 117,000 Dividends (40% payout) s 175.500 increased retained earnings Fixed costs include (a) lease expense of s200,000 and (b) depreciation of $500,000. its bond issue. The Note: Ryan Boots also has $65,000 per year in sinking fund obligations associated with tax-deductible. sinking fund represents an annual repayment of the principal amount of the bond. It is not

Explanation / Answer

Answer: A

Ryan Boot Company

Analysis Ratios

Ryan Boot

Industry

Profit margin

$292,500 ÷ 7,000,000

4.18%

5.75%

Return on assets

$292,500 ÷ 8,130,000

3.60%

6.90%

Return on equity

$292,500 ÷ 2,880,000

10.16%

9.20x

Receivables turnover

$7,000,000 ÷ 3,000,000

2.33x

4.35x

Inventory turnover

$7,000,000 ÷ 1,000,000

7.00x

6.50x

Fixed asset turnover

$7,000,000 ÷ 4,000,000

1.75x

1.85x

Total asset turnover

$7,000,000 ÷ 8,130,000

0.86x

1.20x

Current ratio

$4,130,000 ÷ 2,750,000

1.50x

1.45x

Quick ratio

$3,130,000 ÷ 2,750,000

1.14x

1.10x

Debt to total assets

$5,250,000 ÷ 8,130,000

64.58%

25.05%

Interest coverage

$700,000 ÷ 250,000

2.80x

5.35x

Fixed charge coverage

($700,000 + $200,000)/$250,000 + $200,000 + ($65,000/ (1-.35) = $900,000/$550,000

1.64x

4.62x

Answer: B. BEP in sales dollars

First we must calculate the contribution margin.

CM = Sales – Variable expenses

CM = $7,000,000 – 4,200,000

CM = $2,800,000

Contribution Margin Ratio = CM ÷ Sales

CMR = $2,800,000 ÷ 7,000,000

CMR = 40%

BEP = Total Fixed Assets ÷ CMR

BEP = $2,100,000 ÷ 40%

BEP = $5,250,000 in sales dollars

Cash BEP = same as above accept the non cash expenses would be removed from the fixed assets per the instructor help.

Cash BEP = (TFA – Non Cash expenses) ÷ CMR

Cash BEP = ($2,100,000 – 500,000) ÷ 40%

Cash BEP = $1,600,000 ÷ 40%

Cash BEP = $4,000,000