Compute the degree of financial leverage

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Reference no: EM131995203

The Sterling Tire Company's income statement for 2013 is as follows:

STERLING TIRE COMPANY
Income Statement
For the Year Ended December 31, 2013
  Sales (39,000 tires at $98 each) $ 3,822,000
  Variable costs (39,000 tires at $49)
1,911,000
  Fixed costs
590,000



  Earnings before interest and taxes (EBIT) $ 1,321,000
  Interest expense
59,500



  Earnings before taxes (EBT) $ 1,261,500
  Income tax expense (20%)
252,300



  Earnings after taxes (EAT) $ 1,009,200


Given this income statement, compute the following:

a.  Compute the degree of operating leverage. (Round your answer to 2 decimal places.)

Degree of operating leverage

b. Compute the degree of financial leverage. (Round your answer to 2 decimal places.)

Degree of financial leverage

c.  Compute the degree of combined leverage. (Round your answer to 2 decimal places.)

Degree of combined leverage

d.  Compute the break-even point in units. (Round your answer to the nearest whole number.)

Break-even point units

Reference no: EM131995203

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