Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes).

Required
1. Compute times interest earned for Ace Company.
2. Compute times interest earned for Deuce Company.
3. What happens to each company’s net income if sales increase by 30%?
4. What happens to each company’s net income if sales increase by 50%?
5. What happens to each company’s net income if sales increase by 80%?
6. What happens to each company’s net income if sales decrease by 10%?
7. What happens to each company’s net income if sales decrease by 20%?
8. What happens to each company’s net income if sales decrease by 40%?
Analysis Component
9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two companies and the ratio values you computed in parts 1 and2.

Transcribed Image Text:

Ace Company Deuce Company ..$500,000 300,000 200,000 130,000 $70,000 Sales w...$500,000 Sales. 400,000 Variable expenses (60%) 00,000Income before interest 30.000 nterest expense (fixed) Net income ....4 Income before interest Interest expense (fixed) . $70,000