Problem 3 You own a company whose sales are highly cyclical. You were advised at a recent management seminar about the features of a strategic planning tool referred to as the "Degree of Operating Leverage". The principal attribute is the ability to determine the impact on change (either way) in sales revenue on the company's "pre-tax operating profit" (EBIT). With that in mind you've charged your finance department to perform regression analyses on selected expenses to ascertain the nature of the expense from the perspective of either fixed and/or variable characteristics. The results of the regression, performed over the last 60 months, utilizing the linear regression model, (y = a + bx] where "x" equals sales, is attached. Cost of Goods Sold (y = bx) = 52% of sales Salaries (y = a + bx) = 80,000 + 8% of sales Operating Expenses (y = a + bx) = 55,000 + 5% of sales With this data, you commence to determine first: annual sales necessary to break even; next, with $650,000 in projected annual sales, what is the projected EBIT; and last, what happens to the bottom line when the projected sales increase by 5%, or, declines by 5% What is the actual degree of operating leverage" that impacts your analyses? Also, along with the above, with a planned Times Interest Earned of 5x, what is the Degree of Financial Leverage and what is its effect on EBT with the same sales decrease of 5%. Problem 3 You own a company whose sales are highly cyclical. You were advised at a recent management seminar about the features of a strategic planning tool referred to as the "Degree of Operating Leverage". The principal attribute is the ability to determine the impact on change (either way) in sales revenue on the company's "pre-tax operating profit" (EBIT). With that in mind you've charged your finance department to perform regression analyses on selected expenses to ascertain the nature of the expense from the perspective of either fixed and/or variable characteristics. The results of the regression, performed over the last 60 months, utilizing the linear regression model, (y = a + bx] where "x" equals sales, is attached. Cost of Goods Sold (y = bx) = 52% of sales Salaries (y = a + bx) = 80,000 + 8% of sales Operating Expenses (y = a + bx) = 55,000 + 5% of sales With this data, you commence to determine first: annual sales necessary to break even; next, with $650,000 in projected annual sales, what is the projected EBIT; and last, what happens to the bottom line when the projected sales increase by 5%, or, declines by 5% What is the actual degree of operating leverage" that impacts your analyses? Also, along with the above, with a planned Times Interest Earned of 5x, what is the Degree of Financial Leverage and what is its effect on EBT with the same sales decrease of 5%