a) Explain the term leverage and what is the difference between financial and operating leverage [ 3 Marks]

b)

The RAAS Companys income statement for 2020 is as follows: [ 5 Marks]

STERLING RINGS COMPANY
Income Statement
For the Year Ended December 31, 2020
Sales (20,000 RINGS at $30 each)..............................	$600,000
Less: Variable costs (20,000 tires at $10).................	200,000
Fixed costs..............................................................	100,000
Earnings before interest and taxes (EBIT)..................	?
Interest expense...........................................................	50,000
Earnings before taxes (EBT)........................................	?
Income tax expense (18%)...........................................	? ,000
Earnings after taxes (EAT)..........................................	$ ?

FILL IN THE MISSING AMOUNTS

Given this income statement, compute the following:

a. Degree of operating leverage.

b. Degree of financial leverage.

c. Degree of combined leverage.

d. Break-even point in units.