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 Summary
The solution explains how to calculate DOL, DFL, DCL and EPS.
Solution Preview
Calculation is in millions
DOL = (Sales - Variable Costs) / (Sales - Variable Costs - Fixed costs)
= (5 - 1) / (5-1 - 2) = 2
DFL = EBIT / (EBIT ...
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