XYZ Inc. is selling a product for $7 a unit, and its estimated sales is 7 million unit. The variable cost per unit is 65% of the selling price, and the fixed cost is expected to be $6 million. The firm expects to pay $950,000 in preferred dividends and has interest expense of $1,285,000. XYZ Inc has 1 million shares of common stock outstanding , and it has a marginal tax rate of 20%. 2

1. Create an income statement that includes EBIT (earnings before interest and taxes) and EPS (earnings per share).

2. Determine the operating break-even point in units and also in dollars.

3. Determine its operating leverage, financial leverage, and combined leverage.

4. If XYZ expects sales to go up by 3%, what percentage change in EBIT and EPS should it expects?