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Problem - The following is information for three local auto dealers:
Bell's Domestics
Junior's Used
Europe's Best
Industry Average
Average Selling Price
$40,000
$30,875
$59,460
$37,500
Unit Sales
1,512
1,832
872
1,265
Interest Expense
816,750
1,089,000
3,267,000
1,633,500
Variable Costs (% of Sales)
60%
45%
40%
48%
Fixed Costs
9,900,000
6,930,000
19,800,000
10,890,000
Preferred Dividends
815,000
0
452,000
315,000
Common Shares
4,500,000
7,200,000
2,700,000
6,300,000
Required -
a. Using the information given in the above table, construct income statements for each company and the industry average. Assume that each company faces a tax rate of 25%.
b. Calculate the break-even points and the degrees of operating, financial, and combined leverage for each company and the industry average.
c. Compare the companies to each other and the industry average. What conclusions can you draw about each operation?
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