Question

9. Calculating the degrees of leverage Praxis Corp. forecasts the following income statement for the next year: Income Statement For the Year Ended on December 31 $960,000 Net sales Less: Variable costs Less: Fixed costs 532,000 159,000 $269,000 EBIT, or NOI Less: Interest 151,000 EBT $118,000 47,200 Less: Taxes Net income $70,800 Praxis Corp. uses no preferred stock in its capital structure. Click on the following lines and calculate the degrees of operating, financial, and total leverage for Praxis Corp. DOL DTL Grade It Now Save & Continue

Answer 1

The DOL is computed as shown below:

= ( Sales - variable cost ) / EBIT

= ( $ 960,000 - $ 532,000 ) / $ 269,000

= 1.59 Approximately

DFL is computed as follows:

= EBIT / EBT

= $ 269,000 / $ 118,000

= 2.28 Approximately

DCL is computed as follows:

= ( sales - variable cost ) / EBT

= ( $ 960,000 - $ 532,000 ) / $ 118,000

= 3.63 Approximately

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