The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement...

Transcribed Image Text:

The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX Sales (35,000 tires at $50 each) Less: Variable costs (35,000 tires at $20) $1,750,000 700,000 Contribution margin Less: Fixed costs 1,050,000 750,000 Earnings before interest and taxes (EBIT) Interest expense 300,000 75,000 Earnings before taxes (EBT) Income tax expense (30) 225,000 67,500 Earnings after taxes (EAT) 157,500 Glven this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL b. Degree of financial leverage. (Round the final answer to 2 decimal places.) DFL c-1. Degree of combined leverage. (Do not round the intermediate calculations. Round the final answer to 2 decimal places.) DCL c-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sales volume. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.) EBIT EBT c-3. Does financial or operating leverage have the greater Impact? O DFL O DOL d. Break-even polnt in units. (Round the final answer to the nearest whole number.) Break-even point Ures e. Break-even point considering the interest expense as a fixed cost. Break-even point tires The Sterling Tire Company's income statement for 20XX is as follows: STERLING TIRE COMPANY Income Statement Year ended December 31, 20XX Sales (35,000 tires at $50 each) Less: Variable costs (35,000 tires at $20) $1,750,000 700,000 Contribution margin Less: Fixed costs 1,050,000 750,000 Earnings before interest and taxes (EBIT) Interest expense 300,000 75,000 Earnings before taxes (EBT) Income tax expense (30) 225,000 67,500 Earnings after taxes (EAT) 157,500 Glven this income statement, compute the following: a. Degree of operating leverage. (Round the final answer to 2 decimal places.) DOL b. Degree of financial leverage. (Round the final answer to 2 decimal places.) DFL c-1. Degree of combined leverage. (Do not round the intermediate calculations. Round the final answer to 2 decimal places.) DCL c-2. Using your answers to a. and b. calculate the percentage increase in EBIT and EBT from a 20 percent increase in sales volume. (Do not round the intermediate calculations. Round the final answers to 2 decimal places.) EBIT EBT c-3. Does financial or operating leverage have the greater Impact? O DFL O DOL d. Break-even polnt in units. (Round the final answer to the nearest whole number.) Break-even point Ures e. Break-even point considering the interest expense as a fixed cost. Break-even point tires

Answer rating: 100% (QA)

a Degree of operating leverage Sales units sale price variable ... View the full answer