Assume the following: Company C’s Sources of Capital:
|
Debt |
$6,000,000 |
|
Owners’ equity |
$6,000,000 |
|
Total capital |
$12,000,000 |
See table for Company C’s profit data for the year. The business paid $360,000 interest for the year. Calculate its financial leverage gain (or loss) for the year.
|
Company B |
Company C |
|||
|
Totals |
Per Unit |
Totals |
Per Unit |
|
|
Sales volume, in units |
50,000 |
1,500,000 |
||
|
Sales revenue |
$15,000,000 |
$300.00 |
$36,000,000 |
$24.00 |
|
Cost of goods sold expense |
$7,500,000 |
$150.00 |
$27,000,000 |
$18.00 |
|
Gross margin |
$7,500,000 |
$150.00 |
$9,000,000 |
$6.00 |
|
Variable operating expenses |
$3,750,000 |
$75.00 |
$4,200,000 |
$2.80 |
|
Contribution margin |
$3,750,000 |
$75.00 |
$4,800,000 |
$3.20 |
|
Fixed operating expenses |
$1,950,000 |
$39.00 |
$3,000,000 |
$2.00 |
|
Operating profit |
$1,800,000 |
$36.00 |
$1,800,000 |
$1.20 |