FIN622 Corporate Finance Assignment 01 Fall 2020 Solution / Discussion
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FIN622 Assignment 1 Fall 2020 Solution:
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FIN622 Corporate Finance | Assignment 1 Solution | Fall 2020
FIN622 – Corporate Finance
Assignment No. 1 - Fall 2020
Solution of requirement 1 and 2:
Variables Rs. |
Policy X |
Policy Y |
||||
Recession |
Normal |
Boom |
Recession |
Normal |
Boom |
|
Sales |
190,000 |
240,000 |
360,000 |
190,000 |
240,000 |
360,000 |
Variable Cost |
133,000 |
168,000 |
252,000 |
161,500 |
204,000 |
306,000 |
Fixed Cost |
60,000 |
60,000 |
60,000 |
20,000 |
20,000 |
20,000 |
Contribution Margin.(Sales-V.Cost) |
57,000 |
72,000 |
108,000 |
28,500 |
36,000 |
54,000 |
Profit before interest and tax (Contribution Margin-Final Cost) |
(3,000) |
12,000 |
48,000 |
8,500 |
16,000 |
34,000 |
Degree of operating leverage = Contribution margin/PBIT |
(19) |
6 |
2.25 |
3.35 |
2.25 |
1.59 |
Solution of requirement 3:
Economic Condition |
Higher Degree of Operating Leverage |
Recession |
Policy Y |
Normal |
Policy X |
Boom |
Policy X |
Solution of requirement 4:
Under policy X, the profitability of the company gets less affected due to changes in the economic condition because under policy X the variable cost is less and Profit is higher at BOOM economic condition.
FIN622 Assignment 1 Fall 2020 Solution:
Download attachment for FIN622 assignment 1 solution file.
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