Suppose Samsung Corporation has $2 million in sales (S), with variable costs (VC) equal to 70% of
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Question 1 : Determine Samsung's degree of operating leverage (DOL). Verification figure: DOL = 1.2. Hint: Use Equation 13A-2a.
Question 2 : Determine the degree of financial leverage (DFL) of Samsung. Hint: Use Equation 13A-3.
Question 3 : If Samsung's operating income (EBIT) increases by 20%, by what percentage will its net income increase? Check figure: NI will increase by 22.22%. Hint: You can use the DFL to help answer this.
Question 4: Determine Samsung's degree of total leverage (DTL). Verification figure: DTL = 1.3333.
Question 5 : If Samsung's sales increase by 15%, by what percentage will the company's net income increase? Please answer this question independently of question 3. Hint: You can use the DTL to help answer this.
Question 6 : Determine Samsung's DFL if it had no long-term debt.
Related Book For
Fundamentals Of Corporate Finance
ISBN: 9780135811603
5th Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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