5-10. Continued DOL at 25.000 25,000($10-$5) 25000(610-$5)-$80,000 $125000 2.78X $45,000 Leverage goes down because we are further away from the break-even point, thus the firm is operating on a larger profit base and leverage is EBIT . dFL= EBIT First determine the profit or loss(ebit)at 20,000 bags. As indicated in part b, the profit(EBIt)at 25,000 bags is $45,000 20,000bags Sales@$10 per bag $200000 Less: Variable Costs ($5) 10000 Fixed Costs 80.000 Profit or loss $20.000 $20000 DFL at 20.000 $20,000-$10,000 Copyright o2005 by The McGranr-Hill Companies, Inc.Copyright © 2005 by The McGraw-Hill Companies, Inc. S-172 5-10. Continued ( ) ( ) 2.78x $45,000 $125,000 25,000 $10- $5 $80,000 25,000 $10 $5 DOL at 25,000 = = − − = Leverage goes down because we are further away from the break-even point, thus the firm is operating on a larger profit base and leverage is reduced. EBIT I EBIT d. DFL − = First determine the profit or loss (EBIT) at 20,000 bags. As indicated in part b, the profit (EBIT) at 25,000 bags is $45,000: 20,000 bags Sales @ $10 per bag $200,000 Less: Variable Costs ($5) 100,000 Fixed Costs 80,000 Profit or Loss $ 20,000 2.0x $20,000 $10,000 $20,000 DFL at 20,000 = − =