Problem:
Items 1 and 2 are based on the following information:
The following information is available for Rothenberg, Inc.:
|
Balance sheet
|
|
|
|
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Current assets
|
$
|
500,000
|
|
|
Property, plant, and equipment
|
|
4,000,000
|
|
|
Total assets
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$
|
4,500,000
|
|
|
Current liabilities
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$
|
30,000
|
|
|
Long-term debt
|
|
2,500,000
|
|
|
Common stock
|
|
200,000
|
|
|
Retained earnings
|
|
1,770,000
|
|
|
Total liabilities and
|
|
|
|
|
stockholders' equity
|
|
|
|
|
|
$
|
4,500,000
|
|
|
Budget income information
|
100,000 units
|
105,000 units
|
|
Sales
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$
|
3,000,000
|
$3,150,000
|
|
Expenses
|
|
(2,800,000)
|
(2,850,000)
|
|
Operating income (EBIT)
|
$
|
200,000
|
$ 300,000
|
|
Earnings per share (EPS)
|
|
$0.20
|
$1.20
|
What is Rothenberg's degree of operating leverage?
1. 1/5
2. 10
3. 5
4. 2/3
What is the degree of financial leverage for Rothenberg, Inc.?
1. 10
2. 5
3. 1/6
4. 1/10