Degree of Financial Leverage = % Change in Net Income % Change in EBIT

Mask No More, Inc. has seen a great explosion in product demand after a feature on 60 Minutes. Company data reveals the following: Revenue 2019 2020 $ 3,600,000 $ 5,220,000 Variable Cost $ 1,440,000 $2,088,000 Contribution Margin $ 2,160,000 $3,132,000 Fixed Costs $ 1,500,000 $1,500,000 EIBIT $ 660,000 $1,632,000 Interest @ 5% $ $ 100,000 $ 100,000 EBT $ 560,000 $ 1,532,000 Taxes @ 20% $ 11,200 $ 30,640 Net Income $ 548,800 $ 1,501,360 (A) If in 2021 Sales are expected to increase by 20% what is the change in net income using DOL formula? (Show details of the formula for DOL) (B) Prepare a pro-forma Income statement for 2021 showing Revenue through Net Income show dollar & % change columns for the year (The pro-forma should prove the DOL formula). (C) What is the DFL for the year 2021 using the alternate method shown in the notes and explain why this DFL is important. (D) If 2022 Sales is unchanged and interest rates increase to 7% (1) What is the % change in EBT? (2)Explain how the DFL can predict the change