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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 (35,000 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 (35,000 tires at $50 each) Less: Variable costs (35,000 tires at $25) $ 1,750,000 875,000 Contribution margin Less: Fixed costs 875,000 750,000 Earnings before interest and taxes (EBIT) Interest expense 125,000 25,000 Earnings before taxes (EBT) Income tax expense (30%) 100,000 30,000 Earnings after taxes (EAT) $ 70,000 Given this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL IX b. Degree of financial leverage. (Round the final answer to 2 decimal places.) DEL 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 CET c-3. Does financial or operating leverage have the greater Impact? DFL ODOL 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 ures Pro or Next >
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