What is degree of operating leverage

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Reference no: EM132049187

1. Adana Company is considering a project with estimated annual unit sales of 160,000; sale price per unit of $34; variable costs per unit of $19; and annual fixed costs of $310,000. The firm expects that the true values for unit sales, price per unit, variable costs per unit, and fixed costs will be within plus or minus 15% of these estimates. The project requires a fixed asset investment of $1,500,000 that will be depreciated straight-line to zero over the project’s 5 year life. The firm’s discount rate is 10% and the tax rate is 30%. Calculate the worst case OCF?

2. A project requires an initial investment of $14,000,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $2,300 each, with variable costs of $750 per unit. Fixed costs are $1,200,000 per year. If the Company is selling 4200 units of this product, what is Degree of Operating Leverage (DOL)?

Reference no: EM132049187

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