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    Effects of Financial Leverage: Model Produces Following Output

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    anajana
    The document shows the effects of different levels of financial leverage on key financial metrics. It models a company's income statement, balance sheet, and other metrics like return on equity and weighted average cost of capital at debt ratios of 20%, 50%, and 80%. Higher debt ratios increase financial risk by raising the interest expense and lowering earnings and returns.

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    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd

    Effects of Financial Leverage: Model Produces Following Output

    Uploaded by

    anajana
    6 views1 page
    The document shows the effects of different levels of financial leverage on key financial metrics. It models a company's income statement, balance sheet, and other metrics like return on equity and weighted average cost of capital at debt ratios of 20%, 50%, and 80%. Higher debt ratios increase financial risk by raising the interest expense and lowering earnings and returns.

    Original Description:

    xls

    Original Title

    Leverage

    Copyright

    © © All Rights Reserved

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    The document shows the effects of different levels of financial leverage on key financial metrics. It models a company's income statement, balance sheet, and other metrics like return on equity and weighted average cost of capital at debt ratios of 20%, 50%, and 80%. Higher debt ratios increase financial risk by raising the interest expense and lowering earnings and returns.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    6 views1 page

    Effects of Financial Leverage: Model Produces Following Output

    Uploaded by

    anajana
    The document shows the effects of different levels of financial leverage on key financial metrics. It models a company's income statement, balance sheet, and other metrics like return on equity and weighted average cost of capital at debt ratios of 20%, 50%, and 80%. Higher debt ratios increase financial risk by raising the interest expense and lowering earnings and returns.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 1

    EFFECTS OF FINANCIAL LEVERAGE

    VARIABLES
    Debt % Enter
    Decimal

    INPUT

    INPUT

    INPUT

    20.00%

    50.00%

    80.00%

    Interest Rate on
    Debt Enter Decimal

    10.00%

    14.00%

    18.00%

    Sales Between
    $5,000 and $50,000

    $12,000

    $12,000

    $12,000

    Variable Cost Ratio


    Enter Decimal

    30.00%

    30.00%

    30.00%

    Income Tax Rate


    Enter Decimal

    40.00%

    40.00%

    40.00%

    Sales Growth Rate


    Enter .0 or Decimal

    0.00%

    0.00%

    0.00%

    GIVEN DATA
    Fixed Costs Enter
    Number

    Increases 4% per year if


    Debt Ratio Increases

    INPUT
    $

    6,800

    MODEL PRODUCES FOLLOWING OUTPUT


    $
    300 $
    300
    Cash
    $
    1,200 $
    1,200
    Receivables
    $
    1,400 $
    1,400
    Inventories
    $
    3,000 $
    3,000
    Plant (Net)
    $
    4,100 $
    4,100
    Equipment (Net)
    $
    10,000 $
    10,000
    Total Assets

    ###
    ###
    ###
    ###
    ###
    $ 10,000

    Total Liabilities
    Stock ($10)
    Tot. Liab./Equity

    $
    $
    $

    2,000
    8,000
    10,000

    $
    $
    $

    5,000
    5,000
    10,000

    $ 8,000
    $ 2,000
    $ 10,000

    Sales
    Fixed Costs
    Variable Costs %
    Sales
    Total Costs
    Earnings Before
    Interest and Taxes
    Less: Interest

    $
    $

    12,000
    6,800

    $
    $

    12,000
    6,800

    $ 12,000
    $ 6,800

    $
    $

    3,600
    10,400

    $
    $

    3,600
    10,400

    $ 3,600
    $ 10,400

    1,600

    1,600

    $ 1,600

    200

    700

    $ 1,440

    1,400

    900

    160

    $
    $

    560
    840

    $
    $

    360
    540

    $
    $

    64
    96

    Increases if Debt Ratio


    Increases (.04/year) on All
    Liabilities

    Earnings Before
    Taxes
    Less: Income Taxes
    Net Income
    EPS
    ROE
    ROA
    WACC
    VF

    $1.05
    10.50%
    8.40%
    10.80%

    $1.08
    10.80%
    5.40%
    10.20%

    $0.48
    4.80%
    0.96%
    11.04%

    $14,815

    $15,686

    $14,493

    Number of Shares Equals


    Stock / $10

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