Smith Bottling Company (SBC) expects this year's sales to be $560,000. SBC's variable oper- ating costs are 75 percent of sales and its fixed operating costs are $90,000. SBC pays interest on its debt equal to $30,000 per year and its marginal tax rate is 35 percent. (a) Compute at SBC's DOL, DFL, and DTL. (b) If sales turn out to be $588,000 rather than $560,000, what will be SBC's EBIT and net income?
2.12-20 Expert Analysts Resources (EAR) has provided you with the following information about three companies you are currently evaluating:
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Company
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Degree of Operating Leverage (DOL)
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Degree of Financial Leverage (DFL)
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Acme
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1.5X
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6.0X
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Apex
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3.0X
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4.0X
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Alps
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5.0X
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2.0X
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Which firm would be considered riskiest? Explain your answer.