ACME, Inc. reported the following income statement for 2015 Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes @ 30% 210,000 Net Income $490,000 Earnings Per Share $4.90 What is the Degree of Total Leverage? a. 1.78 b. 4.90 c. 1.29 d. 2.28

Question

Business

Rowan Newman

8 November, 08:40

ACME, Inc. reported the following income statement for 2015 Sales $2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes @ 30% 210,000 Net Income $490,000 Earnings Per Share $4.90 What is the Degree of Total Leverage? a. 1.78 b. 4.90 c. 1.29 d. 2.28

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Jefferson Wilcox · Answer 1

c. the Degree of Total Leverage is 1.29

Explanation:

For the calculation let's consider the following calculations

Degree of Financial Leverage = EBIT/EBIT-Interest

=900.000 / (900.000-200.000)

=900.000/700.000

Degree of Financial Leverage is 1.29