The paper “ Beta Books New Investment, the Lease Payment, the Capital Gain or Loss on Each Debenture” is a worthy example of an assignment on finance & accounting. Units sales at $180 each (P), Number of units 9000 (Q), Variable cost per unit $95 (V), Fixed operating cost $550000 per annum (F), Outstanding debt of $1500000 at an interest cost of 8% per annum, 50000 ordinary shares (N) Interim dividend at $1 per shareTax at 30%10% increase in sales Degree of Operating Leverage (Cengage Learning, 2010) Where Q(P-V)-F= Earnings before interest and tax (EBIT) (Cengage Learning, 2010) Therefore, Degree of Financial Leverage (DFL) (Cengage Learning, 2010) Where EPS is earnings per share and I am interest paid.
Hence, Combining the degree of operating leverage (DOL) and the degree of financial leverage (DFL) gives a degree of total leverage (DTL). Therefore, (Cengage Learning, 2010) Question 2 Beta Books new investment Let state 1 be when the share price is $10.25 and state 2 when the share price is $11.25. The average payment to old shareholders will be The Beta Books should make the investment because it will boost the company’ s earnings The time to make the investment The investment should be made before the share market learns the true value of the company's existing assets to allow the company to raise more money when it becomes known. Given a choice, the new investment should be made by issuing shares and foregoing debt.
It will be self-financing without external obligations. Question 3 Previous Years % Sales Forecast Values % Sales Forecast Values Sales 1500 - 1725 Retained Earnings 130 30.95% of net income 149.5 Costs 900 60% 1035 Dividends 290 69.05% of net income 333.5 Tax rate 0.3 30% of taxable income 207 Assets Liabilities/Equity Current Assets Current Liabilities Cash 160 10.67% 184 Creditors 300 20% 345 Debtors 440 29.33% 506 Short Term Notes 100 N/A 100 Inventory 600 40% 690 Non-Current Assets Non-Current Liabilities PP& E 1800 120% 2070 Debentures 800 N/A 800 Total Assets 3000 3450 Owner’ s Equity Retained Profits 1000 N/A 1149.50 Ordinary Shares 800 N/A 800 Total 3000 3195