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    Capital Structure - DOL, DFL and DCL

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    Determine Alexander's fixed costs, variable costs and variable cost ratio based on its 2004 sales, calculate the following:

    Assuming that next year's sales increase by 15%, fixed operating and financial costs remain constant, and the variable cost ratio and tax rate also remain constant, use the leverage figures just calculated to forecast next years EPS.

    Show the validity of this forecast by constructing Alexanders' income statement for next year according to the revised format.

    See attached file for full problem description.

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    Solution Preview

    Please see the attached file.

    The Alexander Company Revised Balance Sheet

    Sales $17,250,000
    Less Operating expenses
    Wages, salaries, ...

    Solution Summary

    The solution examines Alexander's fixed cost, variable cost, and variable cost ratio based on its 204 sales. The DOL, DFL and DCL are calculated.