FIN 301 YOUR NAME: _________________________ LEVERAGE PROBLEM Pro-Forma

FIN 301 YOUR NAME: _________________________

LEVERAGE PROBLEM

Pro-Forma Income Statement

For Projected Sales Level of $ 1500000

SALES $ 1500000

Less: VC (250000)

Gross Profit $ 1250000

Less: FC 1.050000

EBIT (Operating Profit) $ 200000

ASSUME THIS PRO FORMA INCOME STATEMENT REFLECTS THE OPERATING COST STRUCTURE FOR A NEW PROJECT. WHAT IS PROJECTED OPERATING BREAKEVEN POINT FOR THE COMPANY
GIVEN THE PROPOSED COST STRUCTURE?

BE =

CALCULATE THE COMPANY%u2019S DEGREE OF OPERATING LEVERAGE (DOL)

DOL =

Using the DOL calculation above what will be the EBIT if Sales come in 10% BELOW the pro-forma projection?