Chapter 16 Assignment 4. Financial leverage The following is a list of selected information for Newcastle Co. for the fiscal year. Forecasted Operations Sales with 40.00% Increase Unit Change 150 210 60 1,417.50 2,625.00 (175.00) 4,042.50 (175.00) (0.00) Sales in units (millions) Earnings before interest and taxes (EBIT) Less: Interest Earnings before taxes Less: Taxes (40%) Net income $2,450.00 $1,417.50 $3,867.50 1,547.00 980.00 (0.00) 1,470.00 2,320.50 850.50 Earnings per share (30 million shares) $49.00 $77.35 $28.35 You are an employee for Newcastle Co., and your boss needs help assessing the level of risk associated with the firm's current financial position. Begin by calculating the degree of financial leverage for the change between forecasted operations and the operational increase of 40.00%. O 0.38% 0.60X 01.07 1.05X Your boss says, "Looking good so far. However, I would like to know how we stack up against our strongest competitor, Sunderland Co." Compare the degree of operating leverage of Sunderland Co. with that of Newcastle Co. and then answer the following question. All else being equal, is Newcastle Co. more risky than, less risky than, or as equally risky as Sunderland Co., considering that the degree of financial leverage for Sunderland Co. is 1.07? Equally risky Not enough information given Less risky More risky