Extra Ltd is a retailer of premium office furniture. Its projected revenue for the next year is $350,000, while its variable and fixed costs are expected to be $170,000 and $50,000, respectively. The company currently has borrowings of $400,000 at an interest rate of 5% and 120,000 shares trading at $10 each. As a pandemic has spiraled out of control, the government has announced that businesses will not be taxed on their earnings indefinitely.

(a) Calculate the degree of operating leverage (DOL), the degree of financial leverage (DFL), and the degree of total leverage (DTL) for Extra Ltd. (6 marks)

(b) Suppose Extra Ltd is considering issuing new shares and using the proceeds to completely repay its debt. At what level of projected revenue would Extra Ltd achieve the same earnings per share for a levered and an unlevered capital structure? (10 marks)

(c) At the level of projected revenue found in part (b), is the DTL the same regardless of capital structure? Explain, without using calculations. (6 marks)

(d) Suppose the government decides to impose a low tax rate instead. Discuss how this would this affect your calculations in part (b). (6 marks)