Question
The Sterling Tire Companys income statement for 2013 is as follows: STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 2013 Sales (33,000
| The Sterling Tire Companys income statement for 2013 is as follows: |
| STERLING TIRE COMPANY | ||
| Income Statement | ||
| For the Year Ended December 31, 2013 | ||
| Sales (33,000 tires at $86 each) | $ | 2,838,000 |
| Variable costs (33,000 tires at $43) | 1,419,000 | |
| Fixed costs | 530,000 | |
| Earnings before interest and taxes (EBIT) | $ | 889,000 |
| Interest expense | 56,500 | |
| Earnings before taxes (EBT) | $ | 832,500 |
| Income tax expense (20%) | 166,500 | |
| Earnings after taxes (EAT) | $ | 666,000 |
| Given this income statement, compute the following: | |
| a. | Compute the degree of operating leverage. (Round your answer to 2 decimal places.) |
| Degree of operating leverage |
| b. | Compute the degree of financial leverage. (Round your answer to 2 decimal places.) |
| Degree of financial leverage |
| c. | Compute the degree of combined leverage. (Round your answer to 2 decimal places.) |
| Degree of combined leverage |
| d. | Compute the break-even point in units. (Round your answer to the nearest whole number.) |
| Break-even point | units |
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Smith and Roberson Business Law
Authors: Richard A. Mann, Barry S. Roberts
15th Edition
1285141903, 1285141903, 9781285141909, 978-0538473637
