Calculate the firms degree of operating leverage

Reference no: EM133290020

A. A six month call option on 100 shares of ABC company is selling for $30. The strike price got the option is $4 . The share is currently selling at 3.80 per share.

I. Ignoring brokerage fee, what price must the share achieve just to cover the expense of the options?
II. If the share price rises to $4.75 at the time of expiration, what will the net profit on the option contract be?

B. The SWU company produces a single trip of environmental friendly shopping bag that can be sold at a constant price of $1.50 per bag. Variable cost per bag is $0.90 ( regarding less of the production volume), and fixed cost amount to $180.000 per year. The firm pays a tax rate of 30%. The company's assssss, valued at $625000, are financial by 40% debt and 60% Quilty with the latter in the form of 20,000 ordinary shares ( no preference share are issued) the firm pays an annual interst of 8% on its debt financing
I, calculate the annual operating break - even level (volume) of bag sales)

II, calculate the firm's earning before interst and taxes (EBIT) and earnings per share ( EPS) at annual sales volume of 350,000, 400,000. , 450,000 bags

III, calculate the firm's degree of operating leverage (DOL), degree of financial leverage (DFL) and degree of total leverage ( DTL) at an annual. Volume of sales of 400,000 bags

Reference no: EM133290020

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