7. The computation and interpretation of the degree of combinedleverage (DCL) You and your colleague, Gregory, are currently participating in a finance internship program at Torres Industries. Your current assignment is to work together to review Torres'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 Torres'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 Torres's risk levels. The most recent income statement for Torres Industries follows. Torres is funded solely with debt capital and common equity, and it has 2,000,000 shares of common stock currently outstanding. \begin{tabular}{lcc} & This Year's Data & Next Year's Projected Data \\ \hline Sales & $60,000,000 & $64,500,000 \\ Less: Variable costs & 36,000,000 & 38,700,000 \\ Gross profit & $24,000,000 & $25,800,000 \\ Less: Fixed operating costs & 12,000,000 & 12,000,000 \\ Net operating income (EBIT) & $12,000,000 & $13,800,000 \\ Less: Interest expense & 1,200,000 & 1,200,000 \\ Taxable income (EBT) & $10,800,000 & $12,600,000 \\ Less: Tax expense (40\%) & 4,320,000 & 5,040,000 \\ Net income & $6,480,000 & $7,560,000 \\ Earnings per share (EPS) & $3.24 & $3.78 \end{tabular} 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. Everything else remaining constant, assume Torres Industries decides to convert its labor-intensive manufacturing facility into a capital-intensive facility by laying off over 75% of its labor force and replacing the workers with robotic and technologically advanced manufacturing equipment. Assume that, over the next five years, the wages saved as a result of the layoffs will pay for the changes made to Torres's plant and equipment changes. How would this affect Torres's DOL, DFL, and DCL? - The DOL would be expected to - The DFL would be expected to - The DTL would be expected to