11. The Sterling Tire Company’s income statement for 2008 is as follows:

Given this income statement, compute the following:

a. Degree of operating leverage.

b. Degree of financial leverage.

c. Degree of combined leverage.

d. Break-even point in units.

Transcribed Image Text:

STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 2008 Sales (20,000 tires at $60 each).... Less: Variable costs (20,000 tires at $30) Fixed costs...... Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT). Income tax expense (30%). Earnings after taxes (EAT) $1,200,000 600,000 400,000 200,000 50,000 150,000 45,000 $ 105,000