Homework Answers
| Answer: | ||
| (a) | ||
|
Profit Leverage Effect = 1 / (Pretax earnings / Sales ) = 1 / ($ 84 / $ 823 ) = 9.8 |
||
| Profit Leverage | 9.8 | |
| (b) | ||
|
Incease in Earnings = Purchased materials x 8% = $ 310 x 8% = $ 24.8 |
||
|
Pretax Earnings goes from $ 84 million
to ( $ 84 + $ 2.8 ) |
$ 108.8 | million |
|
Increase ratio ( $ 24.8 / $ 84 ) |
29.5 | % |
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