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The Sterling Tire Companys income statement for 2019 is as follows: Sterling Tire Company Income Statement Year ended December 31, 2019 Sales (20,000 tires at
The Sterling Tire Companys income statement for 2019 is as follows:
Sterling Tire Company
Income Statement
Year ended December 31, 2019
Sales (20,000 tires at $60 each) $1,200,000
Less: Variable costs (20,000 tires at $30) 600,000
Contribution margin 600,000
Less: Fixed costs 400,000
EBIT 200,000
Interest expense 50,000
EBT 150,000
Income tax expense (34%) 51,000
EAT $ 99,000
Using the income statement, compute the following:
- Degree of operating leverage
- Degree of financial leverage
- Degree of combined leverage
- Comment on the impact of a 20% increase in sales. Does financial or operating leverage have the greater impact?
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