BUS 312 Lecture Notes - Lecture 4: Financial Statement, Operating Leverage, Income Statement

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 312
• Professor: George Blazenko

Document Summary

Feb. 12, 2019: (10 marks) abc company has breakeven dollar sales of ,000 per annum and invested capital of ,500,000. The forecast for the upcoming year for abc"s rate of return on invested capital (after tax and after depreciation with today"s invested capital) is 6%. At forecast sales, abc"s ebitda margin will be 20%. Required: jointly determine abc"s contribution margin per dollar sales and their fixed operating costs per annum. Abc expects that neither of these measures will change over abc"s planning horizon. Trade capital and net fixed assets represent 20% and 80% of invested capital respectively. ,200,000 in short-term debt and ,800,000 in equity. Depreciation for reporting, which is also equal to depreciation for tax, is 5% of beginning-of-period net fixed assets. Abc repays no debt and has no capital expenditure for the upcoming year (the forecast year). Abc"s forecast invested capital turnover (forecast sales for the upcoming year divided by today"s invested capital) is 2. 0.