Annes Sdn Bhd makes a patented rubber tapping machine that sells for RM6. Each machine has a variable operating cost of RM3. Fixed operating costs are RM60, 000 per year and the company pays RM12, 000 in interest and preferred dividend of RM6, 000 per year. Currently,
Question 2
Annes Sdn Bhd makes a patented rubber tapping machine that sells for RM6. Each machine has a variable operating cost of RM3. Fixed operating costs are RM60, 000 per year and the company pays RM12, 000 in interest and preferred dividend of RM6, 000 per year. Currently, the company is selling 30,000 machines per year and is taxed at a rate of 40 %.
a) What is the meaning of the term leverage?
b) Discuss operating, financial and total leverage and the relationships among them.
c) What is Annes Sdn Bhd’s operating breakeven point, EBIT and earnings available for ordinary shares.
d) Calculate the company’s degree of operating leverage (DOL), degree of financial leverage ( DFL) and degree of total leverage ( DTL). Comment on your findings
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
