| Question: |
| A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate. |
| a. | Compute its DOL, DFL, and DCL. |
| | DOL = (S – VC)/(S – VC – FC) = |
| | DFL = EBIT/(EBIT – I) |
| | DCL = |
| b. | What will be the expected level of EBIT and net income if next year’s sales rise 10 percent? |
| | EBIT will rise |
| | NI will rise |
| c. | What will be the expected level of EBIT and net income if next year’s sales fall 20 percent? |
| | EBIT will fall |
| | NI will fall |
Mermaid
fn2640_week5_lab2.xls
