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FIN 571 Week 4 Team Assignment Operating Leverage and
Forecasting

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Operating Leverage and Forecasting Problems Team Assignment
Please complete the following problems. When calculating earnings
per share and PE ratios, please show your work. This problem is
similar to the examples shown in the lecture.
1. You manufacture hunting pack systems in China for 80 dollars
each, including shipping. The manufacturing costs only include
variable costs. Variable costs are not calculated as a percentage
of sales in this case. Sales are a function of the number of
packs sold and the price per pack. Likewise, variable costs are a
function of the number of packs sold and the cost to produce
each pack. You sell these packs to retailers for 200 dollars each.
In the current year you will sell 100,000 packs. Your fixed costs
including such items as insurance, marketing, travel, shows,
office supplies, warehouse rentals etc. totals 5 million dollars
this year and are not part of the 80 dollars per pack
manufacturing cost. The federal income tax rate for your
company is 40 percent.
Your company is publicly traded on the NASDAQ with 1,000,000
shares outstanding.