2. Pinches Salt Company has the following income statement:

Sales $5,000,000

Variable Operating Cost 1,000,000

Fixed Operating Cost 2,000,000

EBIT $2,000,000

Interest 500,000

EBT $1,500,000

Tax (at 40%) 600,000

EAT $ 900,000

Preferred Dividends 100,000

Earnings available for CS $ 800,000

Shares Outstanding 400,000

A. Compute Pinches DOL, DFL, and DTL

B. If sales increase to $5,500,000, what is the forecast of the EPS. You need to make a new income statement to complete this problem.

** You will need this formula to complete this problem**

Here it is: DOL at base $ sales TR is TR-TVC/TR-TVC-FC

Here is a formula that can help with the Financial leverage:

EBIT/EBIT -I -((Pref. Div. x 1/(1-Tax Rate))