Variable operating costs of $2 per unit, fixed operating
costs of $10,000, interest of $20,000, and preferred stock dividends of
$12,000.

The firm is in the 40% tax bracket and has 5,000 shares of
common stock outstanding.

a. Calculate the firm’s levels of earnings per share
associated with the expected sales of 20,000 units and with sales of 30,000
units.

b. Calculate the firm’s degree of financial leverage (DFL),
degree of operating leverage, and use the degree of total leverage (DTL)
concept to determine the effect of increase.