1. Blue Sky manufactures mobile phones and wants to add a new model to its current line of products. The firm has estimated that the new phone’s selling price will be $80 and that variable costs would represent 65% of the sale price. Fixed operating costs are estimated to be $15M and the firm’s marginal tax rate is expected to remain at 35%. The firm also has forecasted that interest expenses associated with the new chip will reach $5M. The firm has 5M of common shares outstanding and forecasts a total preferred dividend payment of $200,000 for the next year. If Blue Sky expects to sell 1M units of the new phone, then:
2. Create an income statement with the previous information. Use an if statement for taxes. If income is Oor below, pay o in taxes; otherwise, calculate taxes.
3. Calculate the operating break-even point in both units and dollars.
4. How many units would Blue Sky need to sell in order to achieve earnings, before interest and taxes of $2M? 5. Calculate the degree of operating, financial, and combined leverage. Get Finance homework help