1. Analysts have evaluated the Wright Sign Company and discovered that when sales are $400,000, EBIT equals $125,000, the company's degree of operating leverage (DOL) is 2.0, its degree of financial leverage (DFL) is 4.0, and EPS equals $2.50. According to this information, what will Wright's EBIT be if sales actually equal $360,000 rather than $400,000? What will the EPS be?
2. LPM Corporation sells its product for $10 each. Fixed operating costs equal $100,000, and variable operating costs are 75 percent of the selling price. The firm pays $37,500 in interest, and its marginal tax rate is 35 percent.
(a) What are LPM's operating breakeven point and financial breakeven point?
(b) If LPM expects to sell 65,000 units, what are its degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL)?