Compare the relative risks of the two firms

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Reference no: EM131581448

Firm R has sales of 97,000 units at 1.95 per? unit, variable operating costs of $1.73 per? unit, and fixed operating costs of $6,010. Interest is $10,120 per year. Firm W has sales 97,000 units at $2.53 per? unit, variable operating costs of $1.01per? unit, and fixed operating costs of $62,900. Interest is $17,700 per year. Assume that both firms are in the 40% tax bracket.

A. Compute the degree of operating leverage for firm R.

B. Compute the Degree of operating, financial, and total leverage for firm W.

C. Compare the relative risks of the two firms

D. Discus the principles of leverage that your answers illustrate.

Reference no: EM131581448

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