From the Following Income Statement for 2005, Calculate:
A) Degree $12 / 31 / 05$

question 44

Essay

From the following income statement for 2005, calculate:
A) Degree of financial leverage
B) Degree of operating leverage
C) Degree of combined leverage Income Statement
for the year ended $12 / 31 / 05$
$\begin{array}{lr}\text { Sales } & \$ 440,000 \\\text { Variable cost } & 240,000 \\\text { Contribution margin } & 200,000 \\\text { Fixed costs } & 96,000\\\text { EBIT } & 104,000 \\\text { Interest } &{1 9 , 2 0 0} \\\text { EBT } & 84,800 \\\text { Taxes } @ 35 \% & 29,680\\\text { Net income } & \$ 55,120 \\\text { Shares outstanding } & 16,000 \\\text { EPS } & \$ 5.52\end{array}$

• A) Degree of financial leverage
• B) Degree of operating leverage
• C) Degree of combined leverage Income Statement
• for the year ended \(12 / 31 / 05\)
• \(\begin{array}{lr}
• \text { Sales } & \$ 440,000 \\
• \text { Variable cost } & 240,000 \\
• \text { Contribution margin } & 200,000 \\
• \text { Fixed costs } & 96,000\\
• \text { EBIT } & 104,000 \\
• \text { Interest } &{1 9 , 2 0 0} \\
• \text { EBT } & 84,800 \\
• \text { Taxes } @ 35 \% & 29,680\\\text { Net income } & \$ 55,120 \\
• \text { Shares outstanding } & 16,000 \\
• \text { EPS } & \$ 5.52
• \end{array}\)

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Definitions:

Price Ceiling

A legal maximum price that can be charged for a good or service, above which it cannot rise.

Price Floors

Minimum price levels set by the government for certain goods and services, below which they cannot be sold.

Price Ceilings

A government-imposed limit on how high a price can be charged for a product or service.

Quantity Traded

The total number of units of goods or services exchanged in a market during a given period.