Howell Enterprises is forecasting EPS of $4.00 per share for next year. The firm has 10,000 shares outstanding, it pays 12 percent interest on its debt, and it faces a 40 percent marginal tax rate. Its estimated fixed costs are $80,000 while its variable costs are estimated at 40 percent of revenue. The firm’s target capital structure is 40 percent equity and 60 percent debt and it has total assets of $400,000. On what level of sales is Howell basing its EPS forecast? a) $292,444 b) $105,280 c) $480,400 d) $1,000,000 e) $316,722
I would skip it on the real exam, and if I have time come back to it later…there is no way I’m gonna analyze this on my own time!
Dreary Wrote: ------------------------------------------------------- > I would skip it on the real exam, and if I have > time come back to it later…there is no way I’m > gonna analyze this on my own time! I agree!
i think its a type of problem thats likely on exam, if you read it right, and use paper to put down the specific items you’ll notice its simple algebra. but it took me about 3.5 minutes to plug and play.
…or plug and pray?
NI=EPS*#shares=40,000=> EBT=NI/(1-tax rate)=66,666.67 D=0.6*400=240=>IE=28,800=>EBIT=95,466.67=>EBIT +fix costs+variable costs=sales=> 95,466.67+80,000+0.4*X=X=>X=292,444.45 Should take about 2 mins.
WOW map…WOW that was nice!
yeah no one beats map. hes awesome.
pepps where did you got this question?
When you get these type of questions, always start with the end: the question itself, what are they asking for? And then you’ll figure what to take and where to put it immediatelly. It helps saving time.
A You just have to go into algebra mode… (0.6Rev - 80,000 - (0.12*400,000*0.6))*(1-0.4) = 4(EPS) x 10,000 (shares) Solve for Rev and get 292,444 Its not very hard but high probability of making a silly mistake and leaving out a term on exam day
Surely I will skip this- It will take 2 min to capture all the variable itself for me!