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)

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

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