1. Consider a firm that has fixed costs of 8M. Its sales are 30M and the variable costs are 50% of sales. The firm uses both debt and equity and has an interest expense of 1M. There are no taxes.
2. Determine the firm’s operating leverage and financial leverage.
3. Assume that the sales increase by 10%. By how much percentage points will the firm’s EBIT increase?
4. What would be the resulting increase in Net Income?

Answer rating: 100% (QA)

1 First we will calculate the Earnings before taxes or net income with the given values Sales 30 M V... View the full answer