FIN 3030 Week-4 Assignment-2

FIN 3030 Week-4 Assignment-2

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

  1. Calculate the      DOL.
  2. Calculate the      DFL.
  3. Determine the      DCL
  4. If sales      increased by 20% determine the change in EBIT and the change in EPS.
  5. You must submit      your backup in Excel or other supporting documentation showing how answers      were reached.
 
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