ABC sells 500,000 bottles of fruit juices a year. Each bottle produced has a variable cost of $0.25 and sells for $0.45. Fixed operating costs are $50,000. The company has interest charges of $6,000 and preferred dividends of $2,400. The tax rate is 40%. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of total leverage

ABC sells 500,000 bottles of fruit juices a year. Each bottle produced has a variable cost of $0.25 and sells for $0.45. Fixed operating costs are $50,000. The company has interest charges of $6,000 and preferred dividends of $2,400. The tax rate is 40%. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of total leverage

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter16: Financial Planning And Control

Section: Chapter Questions

Problem 19PROB

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ABC sells 500,000 bottles of fruit juices a year. Each bottle produced has a variable cost of $0.25 and sells for $0.45. Fixed operating costs are $50,000. The company has interest charges of $6,000 and preferred dividends of $2,400. The tax rate is 40%. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of total leverage. Repeat part a. above at the 750,000 bottle sales level. Find out the break-even level of sales. What generalizations can you make comparing a. to b. above in relation to break-even sales?
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