1. Lord of Chipsproduces a special set meal which is distributed nationwide through their fast food franchisees.The following information has been obtained from the pro-forma income statements ofLord of Chips.

Projected Income Statement (all values are thousands)

Sales $30,600

Variable cost $18,360

Fixed operation cost $8,160

Interest expenses $1,080

Preferred dividends $576

Corporate Income tax rate 40%

Required:

1. Compute thedegree of the operatingleverage (DOL), the degree of financial leverage (DFL) and thetotalleverage (DTL). Interpret your computations.
2. Lord of Chipshas entered into a contract with another fast food network which will assist the company to increase its sales by 10% in the coming year. Use DOL, DFL, and DTL to calculate the percentage changes in EBIT and earnings available for common shareholders. Justify your calculations.
3. The two dimensions of risk are viewed as business andfinancialrisk.Distinguish between these two risks.