Question
XYZ company expects in the coming year: sales of 40000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs
XYZ company expects in the coming year: sales of 40000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30000, interest of $50000, and preferred stock dividends of $24000. The Company is in the 40% tax bracket.
a. Compute the following and explain their meaning:
1- Degree of Operating Leverage (DOL).
2- Degree of Financial Leverage (DFL).
3- Degree of Total Leverage (DTL).
b. If XYZ companys Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in earnings before interest and tax (EBIT).
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