1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it...

1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it forecasts that next year’s sales will be $14,880,000. Its fixed costs have been and are expected to continue to be $6,400,000, and its variable cost ratio is 12.50%. Carter’s capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 9%, and 250,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%.

Given this data, complete the following sentences:

•	The percentage change in the company’s sales is _______________ (-8.4% / -7% / -6.3)
•	The percentage change in Carter’s EBIT is _______________ (-10.31% / -12.89% / -18.05%)
•	The degree of operating leverage (DOL) at $14,880,000 is _______________ (219.13 / 1.84 / 0.54) .

2.) There are several ways to use and interpret a firm’s DOL value. Consider the following statement and indicate whether it accurately reflects the meaning or an appropriate use of a firm’s DOL value.

At sales of $24 million, Firm X’s DOL is 1.75, and Firm C’s DOL is 6.50. Firm C exhibits a lower level of business risk than Firm X. (True / False)

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