Degree of Combined Leverage EXAMPLE

Degree of Combined Leverage EXAMPLE - 20 20----20----EPS...

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Combined Leverage EXAMPLE Assume: Technology 1 (from earlier example of Operating Leverage, T1) High Debt ( from earlier example of Financial Leverage, HD) $60 debt @ 10% $40 equity in $2/shares => 20 shares outstanding Expected Alternate Levels of Sales 20XX 20XX' % 20XX'' % Sales $100 $80 -20% $ 120 20% VC - 60 -48 " - 72 " CM 40 32 " 48 " FC - 28 - 28 -0- - 28 -0- EBIT 12 4 -66.7% 20 66.7% I - 6 - 6 -0- - 6 -0- EBT 6 -2 -133.3% 14 133.3% T (50%) - 12 1 " 7 " NI 3 -1 " 7 " # shares
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Unformatted text preview: 20 20----20----EPS .15-.05-133.3% .35 133.3% DCL(T1, HD) = Sales EPS % % = % 20 % 3 . 133--= 6.66 EBIT % EPS % x % EBIT % = Sales = DOL x DFL = 3.33 x 2.00 = 6.66 * In the event of a negative EBT and thus a negative tax (T), assume a tax credit, i.e., an addition to net income (NI) in the amount of the negative tax....
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