Question: Problem 2 (18 marks) You have been provided the following income statements for Tiger Industries and SMU DAWG Incorporated. Tiger SMU DAWg Industies Industries 2019

Problem 2 (18 marks)

You have been provided the following income statements for Tiger Industries and SMU DAWG Incorporated.

Tiger SMU DAWg
Industies Industries
2019 Income Statement
Sale 18,780 11,268
Cost of Goods Sold 9010 5406
Fixed Costs 3250 1950
Depreciation 2450 1470
Earnings Before Interest and Taxes 4070 2442
Interest 3065 1839
Income before taxes 1005 603
Income Taxes 402 211
Net Income 603 392
Shares o/s 100 65
  1. Calculate the degree of operating leverage for each firm. Show your work (4 marks)
  2. Calculate the degree of financial leverage for each firm. (4 marks)
  3. Calculate the degree of combined leverage for each firm. (4 marks)
  4. If both firms were to experience a 15% increase in sales, what is the percentage change impact in the EPS and what is the new EPS for each firm. (4 marks)
  5. Which firm is more risky? (2 marks)

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