c. What is the degree of operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverage change as the quantity sold increases? d. If Healthy Foods has an annual interest expense of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags. e. What is the degree of combined leverage at both sales levels? Chapter 5 Operating and Financial Leverage 16. Lenow Drug Stores and Hall Pharmaceuticals are competitors in the discount drug chain store business. The separate capital structures for Lenow and Hall are presented here: Earnings pe! and financia leverage (LO5-4) Hall Lenow Debt @ 10% ........... $100,000 Common stock, $10 par....... 200,000 Total. ....... $300,000 Shares 20,000 Debt @ 10% ................... $200,000 Common stock, $10 par ................. 100,000 Total ........... .................. $300,000 Common shares ............ ............ 10,000 a. Compute earnings per share if earnings before interest and taxes are $20,000, $30,000, and $120,000 (assume a 30 percent tax rate). Explain the relationship between earnings per share and the level of EBIT. C. If the cost of debt went up to 12 percent and all other factors remained equal, what would be the break-even level for EBIT? 17 The nenital b