problem:- Case 1 - Sales = 40,000 units; Selling price per unit = $5.0; Fixed operating...
problem:-
Case 1 - Sales = 40,000 units; Selling price per unit = $5.0; Fixed operating costs = $40,000.0; Unit variable cost = 40.0% of Selling price; Interest expense = $10,000.0; Taxes = 30.0%; No. of Common stock shares = 10,000.0 shares.
Case 2 - Sales = 60,000.0 units.
Case 3 - Sales = 20,000.0 units.
a) In case 1, what is your EBIT? EPS?
b) In case 3, what is the change in sales? EPS?
c) In case 2, what is the change in EBIT?
d) What is the DOL; DFL; DTL?
Homework Answers
Solution:-
A. EBIT and EPS-
B- Change in sales and in EPS-
Change in Sales = 
Change in Sales = 50%
Hence, Decrease in sales = 50%.
Change in EPS = 
Change in EPS = 85.71%
Decrease in EPS = 85.71%
C- Change in EBIT-
Change in EBIT = 
Change in EBIT = 75%
Increase in EBIT is 75%.
D- To Calculate DOL, DFL, DTL-
Formula of Degree of operating Leverage = 
Formula of Degree of Financial Leverage = 
Formula of Degree of Total Leverage = DOL * DFL
Calculation are done in above image.
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problem:-
Case 1 - Sales = 40,000 units; Selling price per unit = $5.0;
Fixed operating...
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