Assume that a firm has the following Income Statement Use this data to determine the business risk and the financial risk as measured by the degree of operating leverage and the degree of financial leverage, respectively. Also, determine the combined leverage as found with the degree of combined leverage. Utilize these risk measures to see the affect of a change in sales.
Income Statement December 31, Year 1
Sales ($34/unit) $34,000,000
Variable Cost ($20/unit) $20,000,000
Fixed Cost $10,000,000
Interest Expense $120,000
Taxes (40%) $1,552,000
Net Income $2,328,000
1. Calculate the DOL.
2. Calculate the DFL.
3. Determine the DCL
4. If sales increased by 20% determine the change in EBIT and the change in EPS.
5. You must submit your backup in Excel or other supporting documentation showing how answers were reached.
Answer in word calculation in Excel.