The Cold Experience, Inc., a leading manufacturer of The frozen dessert products, is considering the addition of a new p

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The Cold Experience, Inc., a leading manufacturer of The frozen
dessert products, is considering the addition of a new product:
frozen yogurt. The firm estimates that each cup will sell for $3
and that the variable costs per cup will be 65% of the selling
price. The fixed costs are expected to be $3.8 million. The firm
expects to sell at least 11M cups the first year and that the
marginal tax rate will be 20%. The firm expects to pay $250,000 in
preferred dividends and has 1 million shares of common stock
outstanding. The firm also has interest expense of $180,000.
1. Create an income statement including EPS for the new frozen
yogurt’s first year using the information provided.
2. Determine the operating break-even point in units and also in
dollars.
3. Determine its operating leverage, financial leverage, and
combined leverage.
4. If Cold Experience expects sales to go up by 2%, what
percentage change in EBIT and EPS should it expects? Explain.