D&G Textile company is evaluating two different operating structures. Data about those structures are shown as image. Annual interest expense of the firm is $200, it has common shares outstanding of 2,000, and a tax rate of 20 For each operating structure, calculate (a1)EBIT and EPS at 5,000 and 10,000 units (a2)the degree of operating leverage (DOL) and degree of total leverage (DTL) using 10,000 units as a base sales level. (a3)the operating breakeven point in units. Which operating structure has greater operating leverage and business risk? If D&G projects sales of 10,000 units, which operating structure is recommended?
D&G Textile company is evaluating two different operating structures. Data about those structures are shown as image. Annual interest expense of the firm is $200, it has common shares outstanding of 2,000, and a tax rate of 20 For each operating structure, calculate (a1)EBIT and EPS at 5,000 and 10,000 units (a2)the degree of operating leverage (DOL) and degree of total leverage (DTL) using 10,000 units as a base sales level. (a3)the operating breakeven point in units. Which operating structure has greater operating leverage and business risk? If D&G projects sales of 10,000 units, which operating structure is recommended?
Chapter12: Capital Structure
Section: Chapter Questions
Problem 10PROB
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D&G Textile company is evaluating two different operating structures. Data about those structures are shown as image. Annual interest expense of the firm is $200, it has common shares outstanding of 2,000, and a tax rate of 20
- For each operating structure, calculate
(a1)EBIT and EPS at 5,000 and 10,000 units
(a2)the degree of operating leverage (DOL) and degree of total leverage (DTL) using 10,000 units as a base sales level.
(a3)the operating breakeven point in units.
- Which operating structure has greater operating leverage and business risk?
- If D&G projects sales of 10,000 units, which operating structure is recommended?
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