Question
Assume that the Samsung Corporation has $2 million in sales (S), with variable costs (VC) being equal to 70% of its sales, its fixed costs
Assume that the Samsung Corporation has $2 million in sales (S), with variable costs (VC) being equal to 70% of its sales, its fixed costs (F) are $100,000, and its annual long-term interest expense (I) is $50,000. Show all calculations. Question 1: Determine Samsung's degree of operating leverage (DOL). Check figure: DOL = 1.2. Hint: Use equation 13A-2a. Question 2: Determine Samsung's degree of financial leverage (DFL). Hint: Use equation 13A-3. Question 3: If Samsung's operating income (EBIT) increases by 20%, by what percent will its net income increase? Check figure: NI will increase by 22.22%. Hint: You can use the DFL to help answer this. Question 4: Determine Samsung's degree of total leverage (DTL). Check figure: DTL = 1.3333. Question 5: If Samsung's sales increase by 15%, by what percent will the company's net income increase? Answer this question independently of question 3. Hint: You can use the DTL to help answer this. Question 6: Determine Samsung's DFL if it had no long-term debt.
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