CORPORATE FINANCE

REI, second year, first term, 2014-2015

1. During 2013, the company you analyze (the same whose Balance Sheet you analyzed
last week) had the following performance:
Operating Revenues
Cost of Goods Sold
Selling, General and Administrative Expenses
Depreciation

920,000 RON
(710,000) RON
(98,000) RON
(9,000) RON

Operating Income
Other Income
Other Expenses (except Interest)

103,000 RON
0 RON
0 RON

Earnings before Interest and Taxes (EBIT)

Interests

103,000 RON
(43,000) RON

Earnings Before Taxes (EBT)

Corporate Income Tax (50%)

60,000 RON
(30,000) RON

Net Income

30,000 RON

Requirements:
a) Analyze the types of revenues and costs.
b) What is the connection between the IS and the BS of the company (Depreciation,
Accumulated retained earnings)?
c) Build the Statement of Changes in Equity
2. The financial data on the 2013 Income Statement of a company you are interested in
look as follows:
a. sales revenue: 32,000
b. salaries: : 3,000
c. interest expenses: : 500
d. raw materials expenses: 8,000
e. depreciation and amortization: : 1,000
f. other expenses with services and materials: : 8,000
g. taxes on land and buildings: : 100

h. corporate income tax: : 100

Requirements:
a) build the IS (Anglo-Saxon and Romanian approach);
b) determine the Value Added and its allocation;
c) if the allocation of value added in 2010 was: 10% to employees, 30% to creditors,
15% to the state, 5% to the company and 40% to the shareholders, comment the
evolution of value added allocation and identify possible future problems.
3. Berry Corporation produces tea pots which are sold with $15/piece. For any
production of less than 400,000 pieces the value of fixed costs is $700,000. The
variable cost is $10/piece.
a) What is the profit or the loss if the volume of sales is 125,000 pieces? What if it is
175,000 pieces?
b) What is the level of the breakeven point? Draw it!
c) What is the operating leverage? If the average level of operating leverage in the
field of tea pot production is 2.5, comment on Berry Corporations risk of operating
activities compared to that of its competitors.
HOMEWORK:
1. Assume that the financial statements for Lillian's Bakery reveal that the bakery's fixed
costs are $49,000 and its variable costs per unit of production (loaf of raisin coffee cake) are
$.30. Further assume that its sales revenue is $1.00 per loaf.
Determine the quantity that has to be produced so that Lilians Bakery reaches the
accounting breakeven point. What is the value of the sales revenue at breakeven?
2. We know the following about a company:
a. sales revenues: $10,000, obtained from selling 1,000 pairs of shoes;
b. variable operating costs: $5,000;
c. depreciation: $2,000;
d. interest expenses: $1,000.
a)
Determine the operating breakeven point in quantity and sales revenue.
b)
If sales increase by 20% what is the value of the operating leverage?
c)
If sales increase with an additional 10%, what will be the increase in EBIT?