What is the firm degree of operating leverage

Assignment Help Financial Management

Reference no: EM131948885

OceanGate sells external hard drives for $300 each. Its total fixed costs are $30 million, and its variable costs per unit are $240. The corporate tax rate is 30%. If the economy is strong, the firm will sell 6 million drives, but if there is a recession, it will sell only half as many. a. What is the firm's degree of operating leverage (defined as the ratio of the percent change in EBIT to the percent change in sales) in going from a recession to a strong economy? Degree of operating leverage b. If the economy enters a recession, what will be the firm’s after-tax profit? (Enter your answer in millions.) After-tax profit $ million.

Reference no: EM131948885

Questions Cloud

What is present value of equity ownership of subsidiary : What is the present value, in dollars, of its equity ownership of the subsidiary? Assume a cost of equity capital of 15% for the subsidiary.

Conduct an analysis within the organization database : Conduct an analysis within the organization's database, explain the type of information that was retrieved in the analysis, and provide real-world examples.

Effect of yoga on academic performance in relation to stress : Write a research paper about Effect of yoga on academic performance in relation to stress. From online sources such as Yoga International and Yoga Journal.

Binding price ceiling decrease over time : Why does a shortage that occurs under a binding price ceiling decrease over time?

What is the firm degree of operating leverage : What is the firm's degree of operating leverage in going from a recession to a strong economy?

Suppose for simplicity that tom can borrow : Suppose for simplicity that Tom can borrow and lend at 0 percent interest. On purely economic grounds should he go to work or to university?

What is the firm wacc and total corporate value : What is the firm’s WACC and total corporate value under each capital structure?

Explains why inflation occurs : Specifically, how the quantity theory of money explains why inflation occurs.

Who is responsible for managing ethics in your organization : Who is responsible for managing ethics in your organization? Who should be responsible? Explain why.

User Account

All Pages