Van Auken Lumber:
Income Statement for December 31, 2007
($ thousand)
Sales $36,000
Cost of goods sold (25,200)
Gross Profit $10,800
Fixed operating costs (6,480)
Earnings before interest and taxes $4,320
Interest (2,880)
Earnings before taxes $1,440
Taxes (40%) (576)
Net Income $ 864
Dividends (50%) $432
Questions:
Problem 1: Compute the degree of operating leverage, degree of financial leverage, and degree of total leverage for Van Auken Lumber.
Problem 2: Interpret the meaning of each of the numerical values you computed in part (a)
Problem 3: Briefly discuss some ways that Van Auken can reduce its degree of total leverage