What are steps in calculating financial breakeven point

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Solution

The solution is explained below −

We need to calculate preferred dividends, net interest expense before calculating financial breakeven point

  • Preferred dividends = preferred stock * 6% = 150*6% => $9 million

  • Net interest expense = total interest expenses – interest income

    • = 150*6% => $9 million

  • Net interest expense = total interest expenses – interest income

    • = 15 million – 2 million => 13 million

  • Financial breakeven = (PD/1-TR)+ NIE

    • = (9/ (1-28%)) + 13

    • = 12.5 + 13

    • = $ 25.5 million

(Here, PD = preferred dividends, TR = Tax rate and NIE = Net Interest Expense).

raja
Published on 25-Sep-2020 16:25:24
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