OCK, Ltd. is a manufacturer and retailer of popular snacks. The company is expecting $80,000 in sales for the coming year, along with $30,000 in variable costs, $15,000 in fixed costs and $10,000 in interest expenses. The marginal corporate tax rate is 20%.

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

(b) Suppose EBIT is 20% less than expected. Using a suitable result from part (a), find the percentage change in net income from expected.

(c) Use your result in part (b) to discuss the meaning of leverage.

(d) Under what circumstances will there be no financial leverage?

(e) Suppose OCK Ltd. would like to replace some of its full-time staff with part-time staff to better meet the erratic demand. Discuss the impact on DOL, DFL, and DTL.