Question

Praxis Corp. forecasts the following income statement for the next year: Income Statement For the Year Ended on December 31 Net sales $960,000 Less: Variable costs Less: Fixed costs 532,000 163,000 EBIT, or NOI $265,000 Less: Interest 146,000 EBT $119,000 47,600 Less: Taxes Net income $71,400 Praxis Corp. uses no preferred stock in its capital structure. Click on the following lines and calculate the degrees of operating, financial, and total leverage for Praxis Corp.

drop down 1 options: 1.42, 1.55, 1.48, 1.37, 1.62

drop down 2 options: 2.74, 2.93, 2.56, 2.39, 2.12, 1.98, 2.23

drop down 3 options: 3.69, 4.00, 3.79, 3.54, 3.45, 3.60, 3.89

Answer 1

DOL = Contribution margin / EBIT = ($960,000 - $532,000) / $265,000 = 1.62

DFL = EBIT / EBT = $265,000 / $119,000 = 2.23

DTL = Contribution margin / EBT = ($960,000 - $532,000) / $119,000 = 3.60