BREAKEVEN AND LEVERAGE Wingler Communications Corporation (WCC) produces premium stereo headphones… 1 answer below »
BREAKEVEN AND LEVERAGE Wingler Communications Corporation (WCC) produces bounty stereo headphones that retail for $28.80 per set, and this year’s sales are expected to be 450,000 individuals. Changeable formation costs for the expected sales inferior offer formation methods are estimated at $10,200,000, and unwandering formation (operating) costs at offer are $1,560,000. WCC has $4,800,000 of debit unappropriated at an concern objurgate of 8%. There are 240,000 distributes of beggarly accumulation unappropriated, and there is no preferred accumulation. The dividend payout connection is 70%, and WCC is in the 40% federal-plus-state tax grasp.
The fraternity is because investing $7,200,000 in new equipment. Sales would not growth, but changeable costs per individual would disengage by 20%. Also, unwandering bounteous costs would growth from $1,560,000 to $1,800,000. WCC could discipline the required cardinal by borrowing $7,200,000 at 10% or by retailing 240,000 joined distributes at $30 per distribute.
a. What would be WCC’s EPS (1) inferior the old formation system, (2) inferior the new system if it uses debit, and (3) inferior the new system if it uses beggarly accumulation?
b. At what individual sales equalize would WCC entertain the similar EPS coxcombical it inferiortakes the cannonade and finances it after a while debit or after a while accumulation?
c. At what individual sales equalize would EPS = 0 inferior the three formation/financing setups— that is, inferior the old scheme, the new scheme after a while debit financing, and the new scheme after a while accumulation financing?
d. On the reason of the decomposition in Parts a through c and dedicated that bounteous leverage is inferior inferior the new setup, which scheme is the riskiest, which has the chief expected EPS, and which would you praise? Assume that there is a fairly lofty appearance of sales reversion as low as 250,000 individuals and enumerate EPSDebt and EPSStock at that sales equalize to aid assess the riskiness of the two financing schemes.