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Problem #1 (15 points) JR Victory Inc has the following forecasted income statement: a) Calculate the degree of operating leverage. (1 point) b) Calculate the
Problem \#1 (15 points) JR Victory Inc has the following forecasted income statement: a) Calculate the degree of operating leverage. (1 point) b) Calculate the degree of financial leverage. (1 point) c) Calculate the degree of combined leverage. (1 point) d) If sales increased by 15%, by how much would EBIT and EPS change? (4 points) e) If the company has 200,000 shares outstanding what would the new EPS be as a result of the 15% increase? (2 points) f) Assume the degree of financial leverage, sales and variable costs are kept unchanged. JR Victory Inc wants to lower it degree of combined leverage to 3.3. How much should they reduce their fixed cost to achieve this new target? (6 points)
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