Problem:
A firm has sales of $10 million, variable costs of $4 million, fixed expenses of $1.5 million, interest costs of $2 million, and a 30 percent average tax rate.
Required:
Question 1: Compute its DOL, DFL, and DCL.
Question 2: What will be the expected level of EBIT and net income if next year's sales rise 10 percent?
Question 3: What will be the expected level of EBIT and net income if next year's sales fall 20 percent?
Note: Please show guided help with steps and answer.