Corporate Finance - Calculating Leverage
Not what you're looking for?
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
EBIT
$4,000,000
Interest Expense
$120,000
EBT
$3,880,000
Taxes (40%)
$1,552,000
Net Income
$2,328,000
Calculate the DOL.
Calculate the DFL.
Determine the DCL
If sales increased by 20% determine the change in EBIT and the change in EPS.
Please submit your backup in Excel showing how answers were reached. Thank you.
Purchase this Solution
Solution Preview
Corporate Finance Calculating Leverage
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 ...
Purchase this Solution
Free BrainMass Quizzes
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.