Question

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The capital structure of Cain is presented below Cain Debt $90,000 8% Common stock 180,000 Total $270,000 Common shares 18,000 Compute the stock price for Cain Auto Supplies if it sells at 18 times EPS and EBIT is $48,000 (assume a 10 percent tax rate). (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Stock price SUS Appliance toasters sell for $61 per unit, and the variable cost to produce them is $35. SUS estimates that the fixed costs are $100,100. a. Compute the break-even point in units | toasters Break-even point b. Fill in the table below (in dollars) to illustrate that the break-even point has been achieved. (Do not leave any empty spaces; input a O wherever it is required. Enter all values as positive value.) S Sales -Variable costs Contribution margin -Fixed costs Total operating profit (loss)

Answer 1

1.first let us know the EPS:

EBIT	48,000
less:interest (90,000*8%)	(7,200)
EBT	40,800
less:tax @10%	(4,080)
net income	36,720
EPS (36,720 / 18,000 shares)	$2.04

now,

stock price =$2.04 EPS *18 times

=>$36.72 per share.

2.

a.contribution per unit =$61 sale price -$35 variable cost

=>$26 per unit

break even point =fixed costs / contribution per unit

=>3,850 units.

b.

sales (3850 units *$61)	234,850
less: variable costs (3850*$35)	134,750
contribution margin	100,100
less:fixed costs	100,100
total operating profits	0