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Chapter 12 Assignment 7. The computation and interpretation of the degree of combined leverage (DC.) You and your colleague, Rafael, are currently participating in a finance internship program at Torres Industries. Your current assignment is to we together to review Torres's current and projected income statements. You will also assess the consequences of management's capital structure ar investment decisions on the firm's future riskiness. After much discussion, you and Rafael decide to calculate Torres's degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) based on this year's data to gain insights into Torres's risk levels. The most recent income statement for Torres Industries follows. Torres is funded solely with debt capital and common equity, and it has 3,000,000 shares of common stock currently outstanding. Sales Less: Variable costs Gross profit Less: Fixed operating costs Net operating income (EBIT) Less: Interest expense Taxable income (EBT) Less: Tax expense (40%) This Year's Data $40,000,000 20,000,000 20,000,000 8,000,000 12,000,000 800,000 11,200,000 4,480,000 $6,720,000 $2.24 Next Year's Projected Data $43,200,000 21,600,000 21,600,000 8,000,000 13,600,000 800,000 12,800,000 5,120,000 7,680,000 $2.56 Net Income Earnings per share (EPS) Given this information, complete the following table and then answer the questions that follow. When performing your computations, round your EPS value and the percentage change values to two decimal places. Torres Industries Data DOL(Sales - $40,000,000) DFL (EBIT = $12,000,000) DTL (Sales - $40,000,000) Everything else remaining constant, assume Torres Industries decides to convert its labor intensive manufacturing facility into a capital-intensive facility by laying off over 75% of its labor force and replacing the workers with robotic and technologically advanced manufacturing equipment Assume that, over the next five years, the wages saved as a result of the layoffs w pay for the changes made to Torres' plant and equipment changes. How would this affect Torres's DOL DFL and DCL The DOL would be expected to The DFL would be expected to The DTL would be expected to

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