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4. Financial leverage The following is a list of selected information for Arsenal Co. for the fiscal year Unit Change 60 Sales in units (millions)
4. Financial leverage The following is a list of selected information for Arsenal Co. for the fiscal year Unit Change 60 Sales in units (millions) Earnings before interest and taxes (EBIT) Less: Interest Forecasted Operations 150 2,625.00 (175.00) Sales with 40.00% Increase 210 4,042.50 (175.00) 1,417.50 (0.00) Earnings before taxes Less: Taxes (40%) Net income $2,450.00 980.00 1,470.00 $3,867.50 1,547.00 $1,417.50 (0.00) 2,320.50 850.50 Earnings per share (30 million shares) $49.00 $77.35 $28.35 You are an employee for Arsenal Co., and your boss needs help assessing the level of risk associated with the firm's current financial position. Begin by calculating the degree of financial leverage for the change between forecasted operations and the operational increase of 40.00% O 0.38 O 0.60 01.07% O 1.05X Your boss says, "Looking good so far. However, I would like to know how we stack up against our strongest competitor, Hotspurs Co." Compare the degree of operating leverage of Hotspurs Co. with that of Arsenal Co. and then answer the following question All else being equal, is Arsenal Co. more risky than, less risky than, or as equally risky as Hotspurs Co., considering that the degree of financial leverage for Hotspurs Co. is 1.07? O Less risky Not enough information given O More risky O Equally risky o Bte am
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