2. An A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate. a) Compute its DOL, DFL, and DCL. b) What will be the expected level of EBIT and net income if next year's sales rise 10 percent? c) What will be the expected level of EBIT and net income if next year's sales fall 20 percent?
2. An A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate. a) Compute its DOL, DFL, and DCL. b) What will be the expected level of EBIT and net income if next year's sales rise 10 percent? c) What will be the expected level of EBIT and net income if next year's sales fall 20 percent?
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 10P
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Transcribed Image Text:2. An A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5
million, interest costs of $2 million, and a 30 percent average tax rate.
a) Compute its DOL, DFL, and DCL.
b) What will be the expected level of EBIT and net income if next year's sales rise 10
percent?
c)
What will be the expected level of EBIT and net income if next year's sales fall 20
percent?
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