The Cold Experience, Inc., a leading manufacturer of The frozen dessert products, is considering the addition of a new product: frozen yogurt. The firm estimates that each cup will sell for $3 and that the variable costs per cup will be 65% of the selling price. The fixed costs are expected to be $3.8 million. The firm expects to sell at least 11M cups the first year and that the marginal tax rate will be 20%. The firm expects to pay $250,000 in preferred dividends and has 1 million shares of common stock outstanding. The firm also has interest expense of $180,000.

1. Create an income statement including EPS for the new frozen yogurts first year using the information provided.

2. Determine the operating break-even point in units and also in dollars.

3. Determine its operating leverage, financial leverage, and combined leverage.

4. If Cold Experience expects sales to go up by 2%, what percentage change in EBIT and EPS should it expects? Explain.