Question
A. Compute the degree of operating leverage: B. Compute the degree of financial leverage: C. Compute the degree of combined leverage: D. Compute the break-even
A. Compute the degree of operating leverage: B. Compute the degree of financial leverage:
C. Compute the degree of combined leverage:
D. Compute the break-even point in units:
The Sterling Tire Companys income statement for 20X1 is as follows:
| STERLING TIRE COMPANY | ||
| Income Statement | ||
| For the Year Ended December 31, 20X1 | ||
| Sales (40,000 tires at $100 each) | $ | 4,000,000 |
| Variable costs (40,000 tires at $50) | 2,000,000 | |
| Fixed costs | 600,000 | |
| Earnings before interest and taxes (EBIT) | $ | 1,400,000 |
| Interest expense | 60,000 | |
| Earnings before taxes (EBT) | $ | 1,340,000 |
| Income tax expense (25%) | 335,000 | |
| Earnings after taxes (EAT) | $ | 1,005,000 |
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Financial Management For Technology Start Ups
Authors: Alnoor Bhimani
2nd Edition
1398603082, 978-1398603080
