Glen Mount Furniture Company Essay

tidings Questions1. Such come forthline allows the mansion to determine at what level of operations it will insure even and to explore the relationship between volume, costs, and profits.2. A utility is in a stable, predictable industry and therefore can afford to drill more financial supplement than an automobile company, which is generally subject to the influences of the tune cycle. An automobile manufacturer may non be able to dish out a large amount of debt when there is a downturn in the economy.3. A labour-intensive company will have low quick-frozen costs and a correspondingly low break-even closure. However, the impact of direct supplement on the firm is small and there will be infinitesimal magnification of profits as volume increases. A capital-intensive firm, on the opposite hand, will have a higher break-even point and enjoy the coercive influences of operating leverage as volume increases.4. For break-even analysis basald on accounting flows, amortiza tion is considered part of determined costs. For cash flow purposes, it is eliminated from fixed costs.The accounting flows perspective is longer-term in nature because we must(prenominal) consider the problems of equipment replacement.5. two operating and financial leverage imply that the firm will engagement a heavy component of fixed cost resources. This is inherently venturey because the obligation to make payments remains regardless of the condition of the company or the economy.6. Debt can only be used up to a point. beyond that, financial leverage tends to increase the boilers suit costs of financing to the firm as well asencourage creditors to place restrictions on the firm. The limitations of utilize financial leverage tend to be greatest in industries that be highly cyclical in nature.7. The higher the interest rate on new debt, the less attractive financial leverage is to the firm.8. Operating leverage primarily affects the operating income of the firm. At this point, financial leverage takes over and determines the overall impact on cabbage per share. A delineation of the combined entrap of operating and financial leverage is presented in Table 5-6 and Figure 5-5.9. At progressively higher levels of operation than the break-even point, the percentage change in operating income as a result of a percentage change in unit volume diminishes. The reason is primarily mathematical as we run low to increasingly higher levels of operating income, the percentage change from the higher base is likely to be less.10. The starting level of sales is significant because we sum of money what can happen at that point. Note that in formula 5-3, we must specify the quantity or beginning point at which mark of operating leverage is being computed.11. Financial leverage, or the use of debt, not only determines how much interest we must pay but similarly the number of shares of common stock that we must issue to support the nondebt particle of our capit al structure. Only by examining earnings per share can we hook up the violence of outstanding shares on the operation of the firm.12. The indifference point only measures indifference based on earnings per share. Since our ultimate determination is market value maximization, we must also be concerned with how these earnings are valued. Two plans that have the same earnings per share may call for different price-earnings ratios, particularly when there is a differential risk component involved because of debt.13. Television broadcasters commit to production schedules, program purchases, etc., in the spring, create the fall/winter program schedule, and then send the salespeople out to sell advertising air time for the coming season. Thus, the costs are virtually 100% locked in before any revenues are generated. A minor fluctuation in advertising revenue, therefore, has a major effect on operating earnings.14. Students may come up with many points expense discussing. Emphasis shoul d be directed to the tremendous debt load that required servicing. Consumer ingest slowed down affecting cash flows, and increased interest rates at the end of an economic cycle had the same effect. Coupled with the excessive prices paid (particularly for Federated Stores) this caused problems. There was only a small margin for error. Discussion may also include Robert Campeaus ego, chastisement to follow advice, and failure to achieve asset sales at projected prices. Campeaus risk was risky but it was close.