Income Statements for Three Companies Are Provided Below Required:
(A) Prepare New Income Statements for the Firms Assuming

question 121

Essay

Income statements for three companies are provided below:
$\begin{array}{|l|c|c|c|}\hline& \text { Company A } & \text { Company B } & \text { Company C }\\\hline \text { Sales (20 units) } & \$ 1,000 & \$1,000 & \$1,000 \\\hline \text { Less variable costs } & 600 & 300 &- \\\hline \text { Less fixed costs } & 200 & 500 & 800 \\\hline \text { Net income } & \$ 200 & \$200 &\$ 200 \\\hline\end{array}$
Required:
(a) Prepare new income statements for the firms assuming each sells one additional unit (i.e. each firm sells 21 units)(b) Briefly describe the effect of cost structure on profitability.

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Definitions:

Warrant

A warrant gives the holder the right, but not the obligation, to buy or sell a company's stock at a specific price before a certain date, often issued as part of a new stock or bond issue.

Asset Securitizations

The financial process of pooling various types of debt instruments (e.g., loans, bonds) and selling them as consolidated financial securities to investors.

Credit Derivatives

Financial instruments that allow parties to manage exposure to credit risk, through vehicles such as credit default swaps (CDS).

CDOs

Collateralized Debt Obligations are complex financial instruments that pool together various cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors.