A company generates $5,000,000 in sales by selling 1.250,000 units at $4per unit. Its variable costs equal 75 percent of sales and its fixed costs are$750,000. Therefore, the company's operating Income (EBIT) equals$500,000. The company estimates that if its EBIT were to increase 10percent, its net income and EPS would increase 25.0 percent. How muchwill net income and EPS increase if sales increase by 10 percent?(Assume that the change in sales will have no effect on the company's taxrate.)O 67.9%O 60.1%O 70.0%O 65.3%O 62.5%

We can solve this problem with the help of following ratios :

Answered: A company generates $5,000,000 in sales…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Callie Corporation’s products sell for $180 each. The variable cost of each product is $135, and fixed operating costs are $371,250. Callie pays $61,875 interest on its outstanding debt each year, and its marginal tax rate is 40 percent. If Callie expects to sell 11,000 units, what is its degree of operating leverage (DOL), its degree of financial leverage (DFL), and its degree of total leverage (DTL)? The firm has no preferred stock.
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