(Answered) Leverage analysis

1. You have developed the following income statement for the Hugo Bass Corporation. It represents the most recent year's operations, which ended yesterday.;Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions;a: What is the firm's break-even point in sales dollars?;b: If sales should increase by 30%, by what percent would earnings before taxes (and net income) increase?;c: Redo part (b) with a 10% reduction in variable cost and a $3000, increase in fixed cost.;Sales: $50,439,375;Variable Costs: (25,137,000);Revenue before fixed costs: $25,302,375.;Fixed costs: (10,143,000);EBIT 15,159,375;Interest expense: (1,488,375);Earnings before taxes: 13,671,000.;Taxes at 50%: (6,835,500);Net Income: 6,835,500.;2. High degrees of financial leverage and operating leverage each involve different types of risk. Risk of what?;3. What are sources of operating leverage and financial leverage and explain their impact on operating and net income?
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Leverage analysis

 


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