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Compare the relative risks of the two firms

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Integrative - Leverage and risk - Firm R had sales of 100,000 units at $2.01 per unit variable operating costs of $1.67 per unit and fixed operating costs of $6,030. Interest is $10,060 per year, Firm W has sales of 100,000 units at $2.52 per unit, variable operating cots of $0.99 per unit, and fixed operating costs of $62,100. Interest is $17,400 per year. Assume that both firms are in the 40% tax bracket

Question a. Compute the degree of operating, financial, and total leverage for Firm R.

Question b. Compute the degree of operating, financial and total leverage for Firm W.

Question c. Compare the relative risks of the two firms.

Question d. discuss the principles of leverage that your answers illustrate.

Reference no: EM132490067

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