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Unformatted text preview: costs, calculate its EBIT and net
c. Calculate the firm’s degree of operating leverage (DOL).
d. Calculate the firm’s degree of financial leverage (DFL).
e. Calculate the firm’s degree of total leverage (DTL).
f. Carolina Fastener has entered into a contract to produce and sell an additional 15,000 latches in the coming year. Use the DOL, DFL, and DTL to
predict and calculate the changes in EBIT and net profit. Check your work by
a simple calculation of Carolina Fastener’s EBIT and net profit, using the
basic information given. LG3 12–16 Various capital structures Charter Enterprises currently has $1 million in total
assets and is totally equity-financed. It is contemplating a change in capital structure. Compute the amount of debt and equity that would be outstanding if the
firm were to shift to each of the following debt ratios: 10, 20, 30, 40, 50, 60,
and 90%. (Note: The amount of total assets would not change.) Is there a limit
to the debt ratio’s value? LG3 12–17 Debt and financial risk Tower Interi...
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