Mary Benn, CFA, is a nancial analyst for Twin Fields Investments, located in Storrs, Connecticut, U.S.A. She has been asked by her supervisor, Bill Cho, to examine two small Japanese cell phone component manufacturers: 4G, Inc., and Qphone Corp. Cho indicates that his clients are most interested in the use of leverage by 4G and Qphone. Benn states, I will have to specically analyze each companys respective business risk, sales risk, operating risk, and nancial risk. Benn begins her analysis by examining the sales prospects of the two rms. The results of her sales analysis appear in Exhibit A. She also expects very little price variability for these cell phones. She next gathers more data on these two companies to assist her analysis of their operating and nancial risk. The relevant data for analysis of 4G is contained in Exhibit B, while Benns analysis of the Qphone data appears in Exhibit C.

Required:

1. Based on the information in Exhibit B, calculate the degree of operating leverage (DOL) of 4G, Inc., at unit sales of 1,200,000.
2. Based on the information in Exhibit B, 4G, Inc.s calculate the degree of nancial leverage (DFL), at unit sales of 1,000,000.
3. Based on the information in Exhibit A and Exhibit C, calculate the Qphones expected percentage change in operating income for 2010.
4. Calculate the 4Gs breakeven quantity of unit sales.

Exhibit A Bens Unit sale Exstimates for 4G,inc, and Qphone Corp

Standard Devision 2010 Expected Unite

Company 2009unite sale of Unite Sale sale Growth rate

4G, Inc 1,000,000 25,000 15%

Qphone Corp 1,500,000 10,000 15%

Exhibit B Sale, Cost and Expense Data for 4G Inc

(At Unit Sales of 1,000,000)

Number of Units Produced and Sold 1,000,000

Sales Price Per Unit 108

Variable Cost per Unit 72

Fixed Operating Cost 22,500,000

Fixed Finance Expense 9,000,000

Exhibition C Bens Analysis of Qphone (At Unit Sales of 1,500,000)

Degree of Operating Leverage 1.4

Degree of Finance Leverage 1.15

Breakeven Quantity (Unit) 571,429