You have developed the following pro forma income statement. It represents the most recent years operations. The company controller wants answers to the following questions
Pro forma income statement
Sales 45,728,000
Variable costs (22,758,000)
_____________
Revenue before fixed costs 22,970,000
Fixed costs (9,110,000)
____________
EBIT 13,860,000
Interest Expense (1,345,000)
_____________
Earnings before taxes 12,515,000
Taxes(50%) 6,257,000
______________
Net Income 6,257,000
a) If sales increase by 30% , the % change in earnings before interest and taxes equals____% , the % change in net income equals____%
b) If sales decrease by 30% , the % change in earnings before interest and taxes equals____% , the % change in net income equals____%
c) If firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to part a and b.