assignment 2466

Question 1

Muscat Video Products’ sales are expected to dencrease from OMR (S0 = 8) million in 2019 to OMR (S1= 7) million in 2020. Its assets totaled (TA) OMR 6 million at the end of 2019. Muscat company is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2019, current liabilities (TCL) were OMR (2) million. The net profit margin (NPM) is forecasted to be 4%, and payout ratio (D) is 30% . Is muscat company needs fund from external or internal to finance the new sales in 2020? And why.

Question 2

The Omani Company has OMR (800) thousand of total debt (Liabilities) outstanding (Liabilities), and it pays an interest of OMR (80) thousand annually . Company’s annual sales are OMR (4) million, its tax rate is 30%, and its rate on equity (ROE) is 20% and tota asset (TA)was OMR (1500) thousand. Omani Company sold product at OMR 5.50 per unit; its variable operating costs are OMR (2.5) per unit . Answer the following:

– a) Calculate the firm’s degree of Operating leverage.

b) Calculate the firm’s degree of financial leverage.

c) What is the combine effect of fixed Operating and Financial Costs?

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