ASDF Corporate Income StatementCurrent YearUnits Sold100,000$37.84$3, 784,000$1,284,000Unit PriceSales RevenueVariable Expenses (Materials &Labor)Fixed Expenses (Marketing &Overhead)Earnings Before Interest & Taxes$350,000$2,150,000(ЕВIT)$198,000$1,952,000Paid InterestEarnings Before Taxes (EBT)$664,000ТахesNet Income after Taxes (NIAT)$1,288,000$258,000DividendsRetained Earnings$1,030,000 15. Given the above Degree of Combined Leverage (DCL), a 15% increase in sales would lead to whatPercent and Dollar increase in Net Income After Taxes (NIAT)?% Increase in NIAT= % Increase in Sales X DCLх$Increase in NIAT= % Increase in NIAT X NIATх

Question
Asked Nov 5, 2019
36 views
ASDF Corporate Income Statement
Current Year
Units Sold
100,000
$37.84
$3, 784,000
$1,284,000
Unit Price
Sales Revenue
Variable Expenses (Materials &
Labor)
Fixed Expenses (Marketing &
Overhead)
Earnings Before Interest & Taxes
$350,000
$2,150,000
(ЕВIT)
$198,000
$1,952,000
Paid Interest
Earnings Before Taxes (EBT)
$664,000
Тахes
Net Income after Taxes (NIAT)
$1,288,000
$258,000
Dividends
Retained Earnings
$1,030,000
help_outline

Image Transcriptionclose

ASDF Corporate Income Statement Current Year Units Sold 100,000 $37.84 $3, 784,000 $1,284,000 Unit Price Sales Revenue Variable Expenses (Materials & Labor) Fixed Expenses (Marketing & Overhead) Earnings Before Interest & Taxes $350,000 $2,150,000 (ЕВIT) $198,000 $1,952,000 Paid Interest Earnings Before Taxes (EBT) $664,000 Тахes Net Income after Taxes (NIAT) $1,288,000 $258,000 Dividends Retained Earnings $1,030,000

fullscreen
15. Given the above Degree of Combined Leverage (DCL), a 15% increase in sales would lead to what
Percent and Dollar increase in Net Income After Taxes (NIAT)?
% Increase in NIAT
= % Increase in Sales X DCL
х
$Increase in NIAT
= % Increase in NIAT X NIAT
х
help_outline

Image Transcriptionclose

15. Given the above Degree of Combined Leverage (DCL), a 15% increase in sales would lead to what Percent and Dollar increase in Net Income After Taxes (NIAT)? % Increase in NIAT = % Increase in Sales X DCL х $Increase in NIAT = % Increase in NIAT X NIAT х

fullscreen
check_circle

Expert Answer

Step 1

Hence, Combined leverage has a degree of 1.28, which is determined by dividing the difference of sales and variable cost from Before tax earnings.

help_outline

Image Transcriptionclose

Sales- Variable cost DCL EBT $3,784,000-S1,284,000 $1,952,000 $2,500,000 $1,952,000 =1.28

fullscreen
Step 2

Combined leverage of degree 1.28 implies that 1% change in sales will produce 1.28% changes in ...

help_outline

Image Transcriptionclose

% Change in NIAT % Change in sales % Change in NIAT DCL= 1.28 = 15% % Change in NIAT = 15x1.28 19.2%

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Imprudential, Inc., has an unfunded pension liability of $582 million that must be paid in 20 years....

A: To find out the value of the pension liability, the amount will be simply discounted to its present ...

question_answer

Q: Consider the following annual returns of Molson Coors and International Paper:    MolsonCoors Int...

A: With the given values we first need to determine the average returns and then standard deviation and...

question_answer

Q: 6:04 IMG_0741.jpg X Given the soaring price of gasoline, Ford is considering introducing a new produ...

A: To determine the incremental annual cash flow from operations, we need to first compute the contribu...

question_answer

Q: Cuban Corporation will pay a dividend of $3.06 per share next year. The company pledges to increase ...

A: Using Gordon Growth Model, we can determine the price of the stock today. The constant growth model ...

question_answer

Q: Explain how financial institutions serve the needs of consumers, small businesses, and corporations....

A: Role of financial institutions (FIs):FIs play a crucial role in economy. They make financial transac...

question_answer

Q: Suppose that 10 years ago you bought a home for $150,000, paying 10% as a down payment, and financin...

A: Calculation of original loan paid off:The original loan paid off is $16,572.Excel Spreadsheet:

question_answer

Q: You buy stock for $34 per share and sell it for $36 after you collect a $1 per share dividend, your ...

A: Price of Stock = $34Selling Price of Stock = $36 Calculation of Pre-tax Capital gain is as follows:

question_answer

Q: With blank voting, all directors up for election are vorted on by the share holders at the same time...

A: With cumulative voting, all directors up for election are voted on by the share holders at the same ...

question_answer

Q: A yield curve is a graphical representation of the relationship between the yields and the maturitie...

A: The yield curve displays the upward path- this yield curve is termed as normal yield curve.The rates...