Reference no: EM133089711
Question - ZipsRUs manufactures high quality zippers for designer handbags and luggage. The wholesale price of each zip is $5.00, the operating cost per zip is $2.80, while total fixed operating costs are $40,000 per year. ZipsRUs pays $10,400 interest and preferred dividends of $6,000 per year. The company currently sells 35,000 zippers per year and is taxed at a rate of 30%.
a. Calculate ZipsRUs operating breakeven point.
b. On the basis of the firm's current sales of 35,000 units per year and its interest and preferred dividend costs, calculate its Earnings Before Interest and Taxes (EBIT) and Earnings Available for Common Stockholders (EACS).
c. Calculate the firm's Degree of Operating Leverage (DOL).
d. Calculate the firm's Degree of Financial Leverage (DFL).
e. Calculate the firm's Degree of Total Leverage (DTL).
f. ZipsRUs has entered into a contract to produce and sell an additional 14,000 zippers in the coming year. Use the DOL, DFL, and DTL to predict and calculate the changes in EBIT and earnings available for common. Check your work by a simple calculation of ZipsRUs EBIT and earnings available for common, using the basic information given.
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