Question
The Sterling Tire Companys income statement for 20X1 is as follows: STERLING TIRE COMPANY Income Statement For the Year Ended December 31, 20X1 Sales (22,000
The Sterling Tire Companys income statement for 20X1 is as follows:
| STERLING TIRE COMPANY | ||
| Income Statement | ||
| For the Year Ended December 31, 20X1 | ||
| Sales (22,000 tires at $64 each) | $ | 1,408,000 |
| Variable costs (22,000 tires at $32) | 704,000 | |
| Fixed costs | 420,000 | |
| Earnings before interest and taxes (EBIT) | $ | 284,000 |
| Interest expense | 51,000 | |
| Earnings before taxes (EBT) | $ | 233,000 |
| Income tax expense (25%) | 58,250 | |
| Earnings after taxes (EAT) | $ | 174,750 |
a. Compute the degree of operating leverage. (Round your answer to 2 decimal places.)
b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.)
c. Compute the degree of combined leverage. (Round your answer to 2 decimal places.)
d. Compute the break-even point in units. (Round your answer to the nearest whole number.)
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Introduction To Derivatives And Risk Management
Authors: Robert Brooks, Don M Chance
9th Edition
1133190197, 978-1133190196
