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15-11 (Leverage and EPS) You have developed the following pro forma income statement for your corporation. It represents the most rccent year's operations, which ended
15-11 (Leverage and EPS) You have developed the following pro forma income statement for your corporation. It represents the most rccent year's operations, which ended yesterday $45 750000 (22 800000) $22 950000 (9200000) $13 750000 1350000) $12400000 (3 720000) $ 8680000 Sales Variable costs Revenue before fixed costs Fixed costs EBIT Interest expense Profit before tax Tax (30%) Net profit Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions: (a) If sales were to increase by 25%, by what percentage would earnings before interest and tax (EBIT) increasc, and by what percentage would net profit increase? (b) If sales were to decrease by 25%, by what percentage would EBIT decrease, and by what percentage would net profit decrease? (c) If the firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to parts (a) and (b)
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