1. Elizabeth Bicycle Company makes bicycles. The firm's income statement is as follows:
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Elizabeth Bicycle Company
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Income Statement
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Sales (11,900 bicycles at $140)
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1,666,000
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Less: Variable costs (11,900 bicycles at $60)
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714,000
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Fixed costs
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520,000
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Earnings before interest and taxes (EBIT)
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432,000
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- Interest (I)
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125,000
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Earnings before taxes (EBT)
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307,000
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- Taxes (T)
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122,800
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Earnings after taxes (EAT)
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184,200
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Compute
a. Degree of operating leverage
b. Degree of financial leverage
c. Degreee of combined leverage
d. The break-even point