Question

In: Finance

Without using any equations from the book, calculate DOL and DFL implied in these numbers.

Given the following base case scenario:  

  BASE CASE

sales $5,000,000

Variable costs $1,600,000

Cash fixed costs $1,800,000

Depreciation Expense $600,000

  Interest Expense   $400,000

1. Calculate the OCF. (0.50 point)

2. Calculate the no-tax cash income. (0,50 point)

3. Without using any equations from the book, calculate DOL and DFL implied in these numbers. (2 points)

Solutions

Expert Solution

Sales 5000000
Less: Variable Costs 1600000
Contribution 3400000
Less: Fixed Costs 1800000
Operating Cash Flow 1600000
Less: Depreciation 600000
EBIT 1000000
Less:Interest 400000
EBT 600000
Add: Depreciation 600000
No Tax Cash Flow 1200000
DOL
[Contribution/EBIT]		 3.4
DFL
[EBIT/EBT]		 1.66667

jeff jeffy answered 3 years ago
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