China America Manufacturing is evaluating two different operating structures which are described below.

MDP 580 GROUP ASSIGNMENT 1
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DUE DATE: 21/09/2015
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1.Given the following balance sheet, income statement, historical ratios and industry averages, calculate the Pulp, Paper, and Paperboard, Inc. financial ratios for the most recent year. Analyze its overall financial situation for the most recent year. Analyze its overall financial situation from both a cross-sectional and time-series viewpoint. Break your analysis into an evaluation of the firm’s liquidity, activity, debt, and profitability. (25 marks)
Income Statement
Pulp, Paper and Paperboard, Inc.
For the Year Ended December 31, 2005

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Balance Sheet
Pulp, Paper and Paperboard, Inc.
December 31, 2005
Historical and Industry Average Ratios
Pulp, Paper and Paperboard, Inc.

2.
China America Manufacturing is evaluating two different operating structures which are described below. The firm has annual interest expense of $250, common shares outstanding of 1,000, and a tax rate of 40 percent.

(a) For each operating structure, calculate
(a1) EBIT and EPS at 10,000, 20,000, and 30,000 units.
(a2) The degree of operating leverage (DOL) and degree of total leverage (DTL) using 20,000 units as a base sales level.
(a3) the operating breakeven point in units.
(b) Which operating structure has greater operating leverage and business risk?
(c) If China America projects sales of 20,000 units, which operating structure is recommended? ( 20 marks)