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The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20xx Sales (25,000 tires at
The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20xx Sales (25,000 tires at $40 each) Less: Variable costs (25,000 tires at $15) Contribution margin Less: Fixed costs Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Income tax expense (32%) Earnings after taxes (EAT) 1,000,000 375,000 625,000 500,000 125,000 75,000 50,000 16,000 34,000 Given this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL X Given this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL X b. Degree of financial leverage. (Round the final answer to 2 decimal places.) DFL c-1. Degree of combined leverage. (Do not round the intermediate calculations. Round the final answer to 2 decimal places.) DCL c-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sales volume. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.) EBIT EBT c-3. Does financial or operating leverage have the greater impact? O DOL c-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sale (Do not round the intermediate calculations. Round the final answers to 2 decimal places.) EBIT EBT c-3. Does financial or operating leverage have the greater impact? O DOL O DFL d. Break-even point in units. (Round the final answer to the nearest whole number.) Break-even point tires e. Break-even point considering the interest expense as a fixed cost. Break-even point tires
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