Question:
Meyer Appliance Company makes cooling fans. The firm’s income statement is as follows:
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Sales (7,000 fans at $20) $140,000
Less:Variable costs (7,000 fans at $8) 56,000
Fixed costs 44,000
Earnings before interest and taxes(EBIT) 40,000
-Interest(i) 10,000
Earnings before taxes (EBT) 30,000
-Taxes (t) 6,000
Earning after Taxes (EAT) $24,000
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Compute:
a. Degree of operating leverage.
b. Degree of financial leverage.
c. Degree of combined leverage.
d. The break-even point.