12-3: Your company has developed an inexpensive filter. The firm sells 92,000 units per year at...

 

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12-3: Your company has developed an inexpensive filter. The firm sells 92,000 units per year at a price of $3.50 and variable cost of $2.75. Annual fixed operating costs are $30,000. Interest charges on debt are $8,000 per year; preferred dividends are $5,000; tax rate is 34%. (A) Compute the operating breakeven point in units. (B) Compute the degree of operating leverage (DOL). (C) Compute the degree of financial leverage (DFL). (D) Compute the degree of total leverage (DTL) using Formula (12.9) on p. 478. Verify your figure by comparing with the product, DOL x DFL. (How do the two results compare?) (E) In Part D above, what assumption is made with regard to EPS? (Hint: See footnote on p. 478.) 12-3: Your company has developed an inexpensive filter. The firm sells 92,000 units per year at a price of $3.50 and variable cost of $2.75. Annual fixed operating costs are $30,000. Interest charges on debt are $8,000 per year; preferred dividends are $5,000; tax rate is 34%. (A) Compute the operating breakeven point in units. (B) Compute the degree of operating leverage (DOL). (C) Compute the degree of financial leverage (DFL). (D) Compute the degree of total leverage (DTL) using Formula (12.9) on p. 478. Verify your figure by comparing with the product, DOL x DFL. (How do the two results compare?) (E) In Part D above, what assumption is made with regard to EPS? (Hint: See footnote on p. 478.)

Answer rating: 100% (QA)

Particulars Sales 92000x350 Variable cost 92000x275 Contribution Fixed Operating C... View the full answer