You and your colleague, Rafael, are currently participating in a finance internship program at Tucker Manufacturing. Your current assignment is to work together to review Tucker's current and projected income statements. You will also assess the consequences of management's capital structure and investment decisions on the firm's future riskiness. After much discussion, you and Rafael decide to calculate Tucker's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) based on this year's data to gain insights into Tucker's risk levels. The most recent income statement for Tucker Manufacturing follows. Tucker is funded solely with debt capital and common equity, and it has 2,000,000 shares of common stock currently outstanding. Sales Less: Variable costs Gross profit Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) Net income Earnings per share (EPS) This Year's Data $80,000,000 32,000,000 48,000,000 28,000,000 20,000,000 4,000,000 16,000,000 6,400,000 $9,600,000 $4.80 Next Year's Projected Data $86,000,000 34,400,000 51,600,000 28,000,000 23,600,000 4,000,000 19,600,000 7,840,000 $11,760,000 $5.88 Given this information, complete the following table and then answer the questions that follow. When performing your calculations, round your EPS and percentage change values to two decimal places. Tucker Manufacturing Data DOL (Sales = $80,000,000) DFL (EBIT = $20,000,000) DTL (Sales = $80,000,000) Everything else remaining constant, assume Tucker Manufacturing decides to convert its labor-intensive manufacturing facility into a capital-intensive facility by laying off over 75% of its labor force and replacing the workers with robotic and technologically advanced manufacturing equipment. Assume that, over the next five years, the wages saved as a result of the layoffs will pay for the changes made to Tucker's plant and equipment changes. How would this affect Tucker's DOL, DFL, and DCL? The DOL would be expected to The DFL would be expected to The DTL would be expected to You and your colleague, Rafael, are currently participating in a finance internship program at Tucker Manufacturing. Your current assignment is to work together to review Tucker's current and projected income statements. You will also assess the consequences of management's capital structure and investment decisions on the firm's future riskiness. After much discussion, you and Rafael decide to calculate Tucker's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) based on this year's data to gain insights into Tucker's risk levels. The most recent income statement for Tucker Manufacturing follows. Tucker is funded solely with debt capital and common equity, and it has 2,000,000 shares of common stock currently outstanding. Sales Less: Variable costs Gross profit Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) Net income Earnings per share (EPS) This Year's Data $80,000,000 32,000,000 48,000,000 28,000,000 20,000,000 4,000,000 16,000,000 6,400,000 $9,600,000 $4.80 Next Year's Projected Data $86,000,000 34,400,000 51,600,000 28,000,000 23,600,000 4,000,000 19,600,000 7,840,000 $11,760,000 $5.88 Given this information, complete the following table and then answer the questions that follow. When performing your calculations, round your EPS and percentage change values to two decimal places. Tucker Manufacturing Data DOL (Sales = $80,000,000) DFL (EBIT = $20,000,000) DTL (Sales = $80,000,000) Everything else remaining constant, assume Tucker Manufacturing decides to convert its labor-intensive manufacturing facility into a capital-intensive facility by laying off over 75% of its labor force and replacing the workers with robotic and technologically advanced manufacturing equipment. Assume that, over the next five years, the wages saved as a result of the layoffs will pay for the changes made to Tucker's plant and equipment changes. How would this affect Tucker's DOL, DFL, and DCL? The DOL would be expected to The DFL would be expected to The DTL would be expected to
