A company has $100 million in sales. Its variable and fixed operating costs are

Question

A company has $100 million in sales. Its variable and fixed operating costs are respectively measured by CGS of $45 million and SG&A plus Depreciation of $25.5 million. The interest on its debt is $6 million and it has 10 thousand shares outstanding. The company pays a combined tax rate of 40% on its earnings. The degree of operating leverage (DOL) for the company is ______. Its degree of financial leverage (DFL) is ______. Combined, the degree of total leverage (DTL) for the company is ______.

Explanation / Answer

operating income = $100 - 45 - 38 million = $17 million DOL = (Sales - Variable cost)/ operating income =(100-45)/(100-45-38) = 3.235 Net income before tax = $17 - $5 = $12 million DFL = Operating Income/ Net income before tax = 17/12 = 1.417 DTL = DFL*DOL = 4.5833

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.