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Leverage and Break Even

Leverage and Break Even - • Degree of Financial...

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LEVERAGE AND BREAKEVEN ANALYSIS Costs Variable Costs -VC Fixed Operating Costs -FC Breakeven Analysis FC = # units S – VC to break even \$100,000 = 20,000 units \$10-\$5 Operating Leverage Financial Leverage Total Leverage Degree of Operating Leverage (DOL) Q (S-VC) = X Q (S-VC) –FC

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Example Given a Quantity of 30,000: 30,000 (\$10-\$5) = 3x 30,000 (\$10-\$5) -\$100,000
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Unformatted text preview: • Degree of Financial Leverage (DFL) EBIT EBT - [PS Div ] = X 1-T Example given interest is \$20,000. Then EBIT is ? and EBT is ? and PS Dividends are \$2000 and the Tax Rate is 50%: \$50,000 \$30,000 – [\$2000 ] = 1.923x 1-.5 • Degree of Total Leverage (DTL) DOL * DFL = DTL 3x * 1.923x = 5.769x...
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