From the Following Income Statement for 2005,calculate:
A)Degree of Financial $12 / 31 / 2015$

question 55

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 $12 / 31 / 2015$
$\begin{array}{lr}\text { Sales } & \$ 440,000 \\\text { Variable cost } & 240,000\\\text { Contribution margin } & 200,000 \\\text { Fixed costs } & 96,000 \\ \text { EBIT } & 104,000 \\\text { Interest } & 19,200\\\text { EBT } & 84,800 \\\text { Taxes @35\% } & 29,680 \\\text { Net Income } & \$ 55,120\\\text { Shares outstanding } & 16,000 \\\text { EPS } & \$ 5.52\end{array}$

• A)Degree of financial leverage
• B)Degree of operating leverage
• C)Degree of combined leverage
• Income Statement
• for the year ended \( 12 / 31 / 2015 \)
• \(\begin{array}{lr}
• \text { Sales } & \$ 440,000 \\
• \text { Variable cost } & 240,000\\\text { Contribution margin } & 200,000 \\
• \text { Fixed costs } & 96,000 \\
• \text { EBIT } & 104,000 \\
• \text { Interest } & 19,200\\\text { EBT } & 84,800 \\
• \text { Taxes @35\% } & 29,680 \\
• \text { Net Income } & \$ 55,120\\\text { Shares outstanding } & 16,000 \\
• \text { EPS } & \$ 5.52
• \end{array}\)

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Definitions:

Lower of Cost

An accounting principle where the inventory is recorded at the lower of its historical cost or market value.

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or disposal, reflecting the net cash expected to be generated.

Highly Inflationary Economy

An economic condition characterized by a cumulative inflation rate over three years approaching or exceeding 100%, significantly impacting financial reporting.

Cumulative Inflation

The total change in the price level of goods and services in an economy over a set period of time, typically resulting in a decrease in purchasing power of the currency.