Mini Cases These Mini Cases are available in MyFinanceLab. 1. Imagine that you were hired recently as a financial analyst for a relatively new, highly leveraged ski manufacturer located in the foothills of Colorado's Rocky Moun tains. Your firm manufactures only one product, a state-of-the-art snow ski. Up to this point the company has been operating without much quantitative knowledge of the business and financial risks it faces. Ski season just ended, however, so the president of the company has started to fo- cus more on the financial aspects of managing the business. He has set up a meeting for next week with the CFO, Maria Sanchez, to discuss matters such as the business and financial risks faced by the company. Accordingly, Maria has asked you to prepare an analysis to assist her in her dis- cussions with the president. As a first step in your work, you compiled the following information regarding the cost structure of the company: 80,000 units $4,000,000 Output level Operating assets Operating asset turnover Return on operating assets Degree of operating leverage Interest expense Marginal tax rate 8 times 32% 6 times $500,000 35% As the next step, you need to determine the break-even point in units of output for the company. One of your strong points has been that you always prepare support- ing work papers that show how you arrived at your conclusions. You know Maria would like to see these work papers to facilitate her review of your work. Therefore, you will have the information you require to prepare an analytical income statement for the company. You are sure that Maria would also like to see this statement. In addition, you know that you need it to be able to answer the following questions. You also know Maria expects you to prepare, in a format that is presentable to the president, answers to the following questions to serve as a basis for her discussions with the president: a. What is the firm's break-even point in sales dollars? b. If sales should increase by 30 percent (as the president expects), by what per- centage would EBT (earnings before taxes) and net income increase? c. Prepare another income statement, this time to verify the calculations from part (b). CHAPTER 12 Determini querque, You are starting 2. Camping USA Inc. has been operating for only 2 years in the outskirts of Albu- New Mexico, and is a new manufacturer of a top-of-the-line camping tent. an internship as assistant to the chief financial officer of the com- know more about the business and financial risks his company must deal with. For pany, and the owner and CEO, Tom Charles, has decided that this is the right time to this, the CFO has asked you to prepare an analysis to support him in his next meeting have put together the following data re- with Tom Charles a week from today. garding the cost structure of the company. Output level Operating assets Operating asset turnover Return on operating assets Interest expense Marginal tax rate 120,000 units $6,000,000 12 times 48% $720,000 42% a The CFO has instructed you to first determine the break-even point in units of output for the company. He requires that you prepare supporting documents that will demonstrate how you arrived at your conclusion and can facilitate his review of your work. Accordingly, you are required to have the information needed to pre- pare a pro forma income statement for the company to be presented to the CFO. In a format that is acceptable for a meeting discussion with the CEO, you also need to prepare answers to the following questions: a. What is the firm's break-even point in sales dollars? b. If sales should increase by 40 percent, by what percentage would EBT (earn- ings before taxes) and net income increase? c. Prepare another income statement, this time to verify the calculations from part (b)