Leather Inc. sells its laptop cases for $40 each and has variable costs of $20 per unit. Fixed costs amount to $800,000 and the companys tax rate is 30%. Sales for 2021 amounted to 60,000 laptop cases. The company has $8 mil of equity and $4 mil worth of bonds with a coupon rate of 5%. The current yield on the bonds is 6%

Required:

Prepare the companys income statement (4 marks)

Calculate the companys degree of operating leverage (2 marks)

Calculate the companys degree of financial leverage (2 marks)

Calculate the companys degree of combined leverage (2 marks)

Given the degree of combined leverage calculated in part d. Comment on the effect of a 20% increase in sales. (2 marks)

Interest rates have been increasing steadily over the past 3 months. Advise management on the implications of this for the company. (4 marks)