Your company Martin Industries Inc. has experienced a higher than expected dem

Your company Martin Industries Inc. has experienced a higher than expected demand for its new product line. The company plans to expand its operation by 25%
by spending $5000000 for an additional building.

The firm would like to maintain its 40% debt to total asset ratio in its capital structure and its dividend payout ratio of 50% of net income. Last year net
income was $2500000.

Required:

Part Two: The Degree of Leverage

Assume that two companies Brake Inc. and Carbo Inc. have the following operating results:

Brake Inc.

Carbo Inc.

Sales

$300000

$300000

Variable Costs

60000

180000

Fixed Costs

210000

90000

Operating Income

$30000

$30000