Ch 14 Homework Sea 1. The computation and interpretation of the degree of combined leverage (DCL) You and your colleague, Ian, are currently participating in a finance Internship program at Ironworks Railroad. Your current assignment is to work together to review Ironworks'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 Ian decide to calculate Ironworks's degree of operating leverage (DOL), degree of financial leverage (DF), and degree of combined leverage (DCL) based on this year's data to gain insights into Ironworks's nisk levels The most recent income statement for tronworks Railroad follows. Tronworks is funded solely with debt capital and common equity, and it has 2,000,000 shares of common stock currently outstanding. Next Year's Projected Data $86,000,000 34,400,000 Sales Less: Variable costs Gross profit Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) Net income Earnings per share (EPS) This Year's Data $80,000,000 32,000,000 48,000,000 28,000,000 20,000,000 4,000,000 16,000,000 6,400,000 $9,600,000 51,600,000 28,000,000 23,600,000 4,000,000 19,600,000 7,840,000 $11,760,000 $4.80 $5.88 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. Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) Net Income Earnings per share (EPS) 4,000,000 16,000,000 6,400,000 $9,600,000 $4.80 4,000,000 19,600,000 7,840,000 $11,760,000 $5.88 Given this information, complete the following table and then answer the questions that follow. When performing your calculations, round your e and percentage change values to two decimal places. Ironworks Railroad Data DOL (Sales - $80,000,000) DFL (EBIT = $20,000,000) DCL (Sales - $80,000,000) Everything else remaining constant, assume Ironworks Railroad decides to sell 520,000 shares of preferred stock that would pay s4 per share pe in cash dividends. How would this affect Ironworks's DOL, OFL, and DCL? The DOL would be expected to The DFL would be expected to The DCL would be expected to Grade It Now Save & Continue Continue without savin