Profarma shpk, an Albanian pharmaceutical company, makes a patented flu medicine that wholesales for L600. Each bottle of the flu medicine has variable operating costs of L400, while fixed costs are L2,000,000 per year. The firm pays L150,000 interest and preferred dividends of L40,000 per year. At this point the firm is selling 11,000 bottles of medicine per year and is taxed at a rate of 15%.

a. Calculate Profarma’s operating breakeven point.

b. On the basis of the firm’s current sales of 11,000 bottles per year and its interest and preferred dividend costs, calculate its EBIT and earnings available for common stockholders.

c. Calculate the firm’s degree of operating leverage (DOL).

d. Calculate the firm’s degree of financial leverage (DFL).

e. Calculate the firm’s degree of total leverage (DTL).

f. Profarma has entered into a special contract with the Albanian government to produce and sell an additional 5,500 bottles of the flu medicine in the coming year. Use the DOL, DFL, and DTL to predict and calculate the changes in EBIT and earnings available for common stockholders. Check your work by a simple calculation of Profarma’s EBIT and earnings available for common stockholders, using the basic information given.