can you please show me how to do this correctly? Thank you () EBIT an (b) WHat s
ID: 2783130 • Letter: C
Question
can you please show me how to do this correctly? Thank you
() EBIT an (b) WHat sales have on Beachcomber's (ii) net income? 80 0 financial lever nd a degree of total lever 10.0. Ensured expects sales to ree 16-17 Ensured Insurance has a degree of fina age (DFL) equal to 4.0 and a degree of total age age (DTL) equal to 10.0. Ensured expects saler be $600,000 this year, and its net profit maroi ercent. (a) What is Ensured's degree of operatin leverage (DO 7 percent higher than expected, what will income be? L)2 (b) If Ensured's sales turn out to be 16-18 Analysts have evaluated the Wright Sign Compa and discovered that when sales are $400,000, EBIT equals $125,000, the company's degree of operating leverage (DOL) is 2.0, its degree of financial leverage (DFL) is 4.0, and EPS equals $2.50. According to this information, what will Wright's EBIT be if sales actu- ally equal $360,000 rather than $400,000? What will the EPS be? 16-19 Callie Corporation's products sell for The variable cost o each product is $135, and fhed operating costs are $371,250. Callie pays $61,8:5 interest on its outstanding debt each year, and marginal tax rate is 40 percent. If Callie expects , and fixed sell 11,000 units, what is itExplanation / Answer
16-17) Degree of total leverage= Degree of operating leverage x Degree of financial leverage
10= Degree of operating leverage x 4
Degree of operating leverage=10/4= 2.5
Sales=$600,000
Net Profit margin=8%
Net profit margin= Net Income / Sales
8%= Net Income / 600,000
Net income= 0.08*600,000
Net income = 48,000
Degree of operating leverage= % change in EBIT/ % change in Sales
2.5= % change in EBIT / 7
17.5=% change in EBIT
Now
Degree of financial leverage= % change in net income/% change in EBIT
4= % change in Net Income/17.5
% change in Net Income= 4*17.5=70%
% change in net income= change in net income/ net income
0.7= (N-48000)/48000
0.7*48000= N-48000
33600=N-48000
$81,600= N
New income=$81,000
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