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发表于 2011-3-24 14:18 | 只看该作者

Jayco, Inc. sells 10,000 units at a price of $5 per unit. Jayco's fixed costs are $8,000, interest expense is $2,000, variable costs are $3 per unit, and earnings before interest and taxes (EBIT) is $12,000. What is Jayco’s degree of financial leverage (DFL) and total leverage (DTL)?

DFL DTL

A)
1.20 2.00
B)
1.33 1.75
C)
1.33 2.00

DOL = [Q(P ? V)] / [Q(P ? V) ? F] = [10,000(5 ? 3)] / [10,000(5 ? 3) ? 8,000] = 1.67

 DFL = EBIT / (EBIT ? I) = 12,000 / (12,000 ? 2,000) = 1.2

DTL = DOL × DFL = 1.67 × 1.2 = 2.0

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12#
发表于 2011-3-24 14:18 | 只看该作者

Which of the following best describes a firm with low operating leverage? A large change in:

A)
 earnings before interest and taxes result in a small change in net income.
B)
 sales result in a small change in net income.
C)
 the number of units a firm produces and sells result in a similar change in the firm’s earnings before interest and taxes.

Operating leverage is the result of a greater proportion of fixed costs compared to variable costs in a firm’s capital structure and is characterized by the sensitivity in operating income (earnings before interest and taxes) to change in sales. A firm that has equal changes in sales and operating income would have low operating leverage (the least it can be is one). Note that the relationship between operating income and net income is impacted by the degree of financial leverage, and the relationship between sales and net income is impacted by the degree of total leverage.

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13#
发表于 2011-3-24 14:19 | 只看该作者

FCO, Inc. (FCO) is comparing EBIT forecasts to help determine the impact its capital structure has on net income.

Expected EBIT

EBIT + 10%

EBIT

$80,000

$88,000

Interest expense

15,000

15,000

EBT

65,000

73,000

Taxes

26,000

29,200

Net income

39,000

43,800

Liabilities

200,000

Shareholder equity

250,000

Return on equity

15.60%

FCO’s degree of financial leverage is closest to:

A)
 0.80.
B)
 0.60.
C)
 1.25.

The degree of financial leverage (DFL) is interpreted as the ratio of the percentage change in net income to the percentage change in EBIT. FCO can compare two EBIT forecasts to determine how net income is being driven by financial leverage.

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14#
发表于 2011-3-24 14:20 | 只看该作者

If a 10% increase in sales causes EPS to increase from $1.00 to $1.50, and if the firm uses no debt, then what is its degree of operating leverage?

A)
 5.0.
B)
 4.7.
C)
 4.2.

Upon first glance, it appears there is not enough information to complete the problem. However when one realizes DTL = (DOL)(DFL) it is possible to complete this problem. 

DTL = %?EPS/%?Sales = 5

DFL =  EBIT/(EBIT-I) = 1.

(DOL)(1) =5

DOL= 5.

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15#
发表于 2011-3-24 14:20 | 只看该作者

Which of the following events would decrease financial leverage?

A)
 Paying dividends.
B)
 Issuing common stock to purchase assets.
C)
 Issuing debt to purchase assets.

Acquiring assets by issuing stock decreases the degree of financial leverage since total assets are increased but total liabilities remain the same.

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