(Please, use these formulas that are in the image only. )

XYZ company expects in the coming year: sales of 40000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30000, interest of $50000, and preferred stock dividends of $24000. The Company is in the 40% tax bracket.

a. Compute the following and explain their meaning:

1- Degree of Operating Leverage (DOL).

2- Degree of Financial Leverage (DFL).

3- Degree of Total Leverage (DTL).

b. If XYZ companys Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in earnings before interest and tax (EBIT).

1-Breakeven Point Formula: FC op-uc 2-Degree of Operating Leverage (DOL): DOL Percentage change in EBIT Percentage change in sales ex (P-C) DOLCO) Qx (P-ve) - FC Q: the sales level P: sale price ve: variable operating costs per unit. FC: fixed operating costs 3-The Degree of Financial Leverage (DFL) EPS Eatings Available for Common Stockholders Number of shares of common stock outstanding Earnings Available for Common Stockholders EBIT-1 -T-PD Percentage change in EPS DFL- Percentage change in EBIT EBIT DFL at base level EBIT = EBIT - / - (PDF 4-degree of total leverage (DTL): DEL Percentage change in EPS Percentage change in sales Qx (P-DC) DTI at units PD Qx(P-1) - - FC--)