Here's a recent income statement from TC1 Telecommunications Services, Inc. (numbers are in millions)
Sales...................................... $53.7
Costs of goods sold.............. 20.2
Depreciation........................... 13.9
EBIT...................................... $19.6
Interest expense..................... 12.4
EBT....................................... $ 7.2
Taxes (25%)........................... 1.8
Net Income......................... $ 5.4
a. Compute TC1's degree of financial, operating, and combined leverage if one-half of the costs of goods sold are variable costs and one-half are fixed costs.
b. Assume during the current year TC1's sales rise to $59.5 million. What is your estimate of TC1's net income this year?
c. Assume during the current year TC1’s sales fall to $49.3 million. What is your revised estimate for TC1’s net income?