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    Degree of financial leverage and operating leverage

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    The Denny Company is planning to expand production because of the increased volume of sales. The current income statement (before expansion) is as follows:
    Denny Company Income Statement2006
    Sales $4,000,000
    Less: Variable costs (40%) $1,200,000
    Fixed costs 800,000
    Earnings before interest and taxes 2,000,000
    Less: Interest expense 400,000
    Earnings before taxes 1,600,000
    Less: Taxes (@ 35%) 560,000
    Earnings after taxes 1,040,000
    Shares 100,000
    Earnings per share $3.90

    Based on the data provided:
    a. Calculate the degree of operating leverage using the following formula:
    DOL = S-TVC
    S-TVC-FC

    b.Calculate the degree of financial leverage using the following formula: (5 pts)
    DFL = EBIT
    EBIT-I

    c. Calculate the degree of combined leverage before expansion using the following formula: (5 pts)
    DCL = S-TVC
    S-TVC-FC-I

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    https://brainmass.com/business/finance/183200

    Solution Preview

    DOL = S-TVC/ ...

    Solution Summary

    Response provides computatin of degree of financial leverage and operating leverage

    $2.49

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