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    How to perform DOL, DFL, DCL, EPS calculations

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    Given the following information (from an Income Statement), how would you calculate the DOL, DFL, DCL and if sales increase to $5,500,000 how would you forecast EPS?
    Income Statement

    Sales $5,000,000
    Variable operating costs 1,000,000
    Fixed operating costs 2,000,000
    EBIT $2,000,000
    Interest 500,000
    EBT $1,500,000
    Tax (at 40%) 600,000
    EAT $ 900,000
    Preferred dividends 100,000
    Earnings available to common stockholders $ 800,000
    Shares outstanding 400,000

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    Solution Preview

    Calculation is in millions

    DOL = (Sales - Variable Costs) / (Sales - Variable Costs - Fixed costs)
    = (5 - 1) / (5-1 - 2) = 2

    DFL = EBIT / (EBIT ...

    Solution Summary

    The solution explains how to calculate DOL, DFL, DCL and EPS.

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