You have developed the following pro forma income statement. It represents the most recent years operations. The company controller wants answers to the following questions

Pro forma income statement

Sales                                          45,728,000

Variable costs                             (22,758,000)

                                              _____________

Revenue before fixed costs       22,970,000

Fixed costs                              (9,110,000)

                                               ____________

EBIT                                          13,860,000

Interest Expense                       (1,345,000)

                                                _____________

Earnings before taxes                 12,515,000

Taxes(50%)                                 6,257,000

                                                ______________

Net Income                                  6,257,000

a) If sales increase by 30% , the % change in earnings before interest and taxes equals____% , the % change in net income equals____%

b) If sales decrease by 30% , the % change in earnings before interest and taxes equals____% , the % change in net income equals____%

c) If firm were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answers to part a and b.