Finance Two Lab Assignments

FN2640: Fundamentals of Finance > Week 5 > Complete Lab 2 > Lab Elapsed Time: Time Remaining:

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Question 1 of 1: Capital Structure A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate.

a. Compute its DOL, DFL, and DCL. b. What will be the expected level of EBIT and net income if next year's sales rise 10 percent? c. What will be the expected level of EBIT and net income if next year's sales fall 20 percent?

Click here to access the worksheet for this assessment. Source textbook: Melicher, R. W., & Norton, E. A. (2011). Introduction to finance: Markets, investments, and financial management (14th ed.). Hoboken, NJ: John Wiley. Submission Requirements: Answer each problem in detail with a conclusion and results. Submit your answer in a Microsoft Excel file, showing step-by-step solutions to all calculations. Evaluation Criteria: You will be evaluated on the following points using the rubric for your performance in this assessment:

• Did you accurately compute the DOL, DFL, and DCL? • Did you calculate the expected level of EBIT and net income if next year's sales were to rise 10 percent? • Did you calculate the expected level of EBIT and net income if next year's sales were to fall 20 percent?

Click here to download the rubric that will be used to evaluate this lab.

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