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Leverage analysis

VIEWS: 208 PAGES: 1

									EFFECTS OF FINANCIAL LEVERAGE
     VARIABLES            INPUT          INPUT        INPUT
Debt % Enter
Decimal                   20.00%         50.00%      80.00%
Interest Rate on                                                   Increases 4% per year if
Debt Enter Decimal        10.00%         14.00%      18.00%          Debt Ratio Increases
Sales Between
$5,000 and $50,000        $12,000        $12,000     $12,000
Variable Cost Ratio
Enter Decimal             30.00%         30.00%      30.00%
Income Tax Rate
Enter Decimal             40.00%         40.00%      40.00%
Sales Growth Rate
Enter .0 or Decimal        0.00%          0.00%          0.00%


GIVEN DATA                INPUT
Fixed Costs Enter
Number                $      6,800

MODEL PRODUCES FOLLOWING OUTPUT
Cash            $     300 $     300                  $      300
Receivables     $   1,200 $   1,200                  $    1,200
Inventories     $   1,400 $   1,400                  $    1,400
Plant (Net)     $   3,000 $   3,000                  $    3,000
Equipment (Net) $   4,100 $   4,100                  $    4,100
Total Assets    $  10,000 $  10,000                  $   10,000

Total Liabilities     $      2,000   $       5,000   $ 8,000
Stock ($10)           $      8,000   $       5,000   $ 2,000
Tot. Liab./Equity     $     10,000   $      10,000   $ 10,000


Sales                 $     12,000   $      12,000   $ 12,000
Fixed Costs           $      6,800   $       6,800   $ 6,800
Variable Costs %
Sales                 $      3,600   $       3,600   $ 3,600
Total Costs           $     10,400   $      10,400   $ 10,400
Earnings Before
Interest and Taxes    $      1,600   $       1,600   $ 1,600
Less: Interest        $        200   $         700   $ 1,440        Increases if Debt Ratio
                                                                  Increases (.04/year) on All
                                                                          Liabilities
Earnings Before
Taxes
                      $      1,400   $        900    $      160
Less: Income Taxes
                      $        560   $        360    $       64
Net Income            $        840   $        540    $       96

        EPS                                                       Number of Shares Equals
                            $1.05          $1.08       $0.48           Stock / $10
       ROE                 10.50%         10.80%       4.80%
       ROA                  8.40%          5.40%       0.96%
       WACC                10.80%         10.20%      11.04%
        VF                $14,815        $15,686     $14,493

								
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