1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it forecasts that next years sales will be $14,880,000. Its fixed costs have been and are expected to continue to be $6,400,000, and its variable cost ratio is 12.50%. Carters capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 9%, and 250,000 shares of common equity. The companys profits are taxed at a marginal rate of 40%.

Given this data, complete the following sentences:

	The percentage change in the companys sales is _______________ (-8.4% / -7% / -6.3)
	The percentage change in Carters EBIT is _______________ (-10.31% / -12.89% / -18.05%)
	The degree of operating leverage (DOL) at $14,880,000 is _______________ (219.13 / 1.84 / 0.54) .

2.) There are several ways to use and interpret a firms DOL value. Consider the following statement and indicate whether it accurately reflects the meaning or an appropriate use of a firms DOL value.

At sales of $24 million, Firm Xs DOL is 1.75, and Firm Cs DOL is 6.50. Firm C exhibits a lower level of business risk than Firm X. (True / False)