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CellU would have to take out a loan to begin the cell phone case business, so they would like to know how a change in sales will affect their bottom line. The interest expense on the loan would be $10,000 per year. CellU has 15,000 common shares outstanding; their tax rate is 40%.

a. Compute the degree of operating leverage for CellU.

b. Compute the degree of financial leverage for CellU.

c. Compute the degree of total leverage for CellU.

d. find out the EPS for the cell phone cases.

e. If CellU can increase their sales units to 30,000 per year, use the DOL, DFL, and DTL to find out the estimated changes in EBIT and EPS.

Accounting Basics, Accounting

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  • Reference No.:- M945998

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