7. The computation and interpretation of the degree of combined leverage (DCL) You and your colleague, Gregory, are currently participating in a finance internship program at Ironworks Railroad. Your current assignment is to work together to review Ironworks's current and projected income statements. You will also assess the consequences of management's capital structure and investment decisions on the firm's future riskiness. After much discussion, you and Gregory decide to calculate Ironworks's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) based on this year's data to gain insights into Ironworks's risk levels. The most recent income statement for Ironworks Railroad follows. Ironworks is funded solely with debt capital and common equity, and it has 2,000,000 shares of common stock currently outstanding. Sales Next Year's Projected Data $64,500,000 38,700,000 25,800,000 12,000,000 Less: Variable costs Gross profit Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) This Year's Data $60,000,000 36,000,000 24,000,000 12,000,000 12,000,000 1,200,000 10,800,000 4,320,000 $6,480,000 $3.24 13,800,000 1,200,000 12,600,000 5,040.000 Net Income $7,560,000 $3.78 Earnings per share (EPS) Given this information, complete the following table and then answer the questions that follow. When performing your calculations, round your EPS and percentage change values to two decimal places Ironworks Railroad Data Chapter 12 Assignment 12,000,000 Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) 12,000,000 12,000,000 1,200,000 10,800,000 4,320,000 $6,480,000 $3.24 13,800,000 1,200,000 12,600,000 5,040,000 $7,560,000 Net Income Earnings per share (EPS) $3.78 Given this information, complete the following table and then answer the questions that follow. When performing your calculations, round your EPS and percentage change values to two decimal places. Ironworks Railroad Data DOL (Sales = $60,000,000) DFL (EBIT = $12,000,000) DTL (Sales - $60,000,000) Everything else remaining constant, assume Ironworks Railroad decides to sell 520,000 shares of preferred stock that would pay $4 per share per year in cash dividends. How would this affect fronworks's DOL, DFL, and DCL? The DOL would be expected to The DFL would be expected to The DTL would be expected to Grade It Now Save & Continue Continue without saving 12,000,000 Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) 12,000,000 12,000,000 1,200,000 10,800,000 4,320,000 13,800,000 1,200,000 12,600,000 5,040,000 $7,560,000 Net income $6,480,000 Earnings per share (EPS) $3.24 $3.78 Given this information, complete the following table and then answer the questions that follow. When and percentage change values to two decimal places. Ironworks Railroad Data DOL (Sales = $60,000,000) DFL (EBIT = $12,000,000) DTL (Sales - $60,000,000) 2.00 16.67 Everything else remaining consta in cash dividends. How would this! he Ironworks Railroad decides to sell 520,000 shares of prefer 1.11 Jonworks's DOL, DFL, and DCL? The DOL would be expected to The DFL would be expected to The DTL would be expected to Gra MacBook nnn Chapter 12 Assignment Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense 12,000,000 12,000,000 1,200,000 12,000,000 13,800,000 Taxable income (EBT) Less: Tax expense (40%) 0 * 10,800,000 4,320,000 $6,480,000 $3.24 1,200,000 12,600,000 5,040,000 $7,560,000 Net income Earnings per share (EPS) $3.78 2. Given this information, complete the following table and then answer the questions that follow. When performing and percentage change values to two decimal places. Ironworks Railroad Data DOL (Sales - $60,000,000) DFL (EBIT - $12,000,000) DTL (Sales $60,000,000) increase Everything else remaining consta remain constant ks Railroad decides to sell 520,000 shares of preferred stock in cash dividends. How would this DOL, DFL, and DCL? decrease The DOL would be expected to The DFL would be expected to The DTL would be expected to Grade It Now MacBook Air esc 882 F! F3 F4 F5 2 # 3 4. % 5 6