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:

1. Degree of operating leverage
2. Degree of financial leverage
3. Degree of combined leverage
4. Comment on the impact of a 20% increase in sales. Does financial or operating leverage have the greater impact?