Following is the most recent income statement for Ironworks Railroad. Ironworks has no preferred stock. Sales.......................................................................................... $200,000
Question:
Following is the most recent income statement for Ironworks Railroad. Ironworks has no preferred stock.
Sales.......................................................................................... $200,000
Variable operating costs (70% of sales)................................. (140,000)
Gross profit................................................................................... 60,000
Fixed operating costs................................................................ ( 40,000)
Net operating income (EBIT)....................................................... 20,000
Interest expense........................................................................ ( 10,000)
Taxable income............................................................................ 10,000
Taxes (40%)................................................................................... ( 4,000)
Net income..................................................................................... 6,000
a. What is Ironworks’ degree of operating leverage (DOL)?
b. What is Ironworks’ degree of financial leverage (DFL)?
c. What is Ironworks’ degree of total leverage (DTL)?
Step by Step Answer:
Essentials of Managerial Finance
ISBN: 978-0324422702
14th edition
Authors: Scott Besley, Eugene F. Brigham