A project has an estimated sales price of $71 per unit, variable costs of $44.03 per...
A project has an estimated sales price of $71 per unit, variable costs of $44.03 per unit, fixed costs of $57,000, a required return of 14 percent, an initial investment of $79,500, no salvage value, and a life of four years. Ignore taxes. What is the degree of operating leverage at the financial break-even level of output?
Homework Answers
QFinancial breakeven implies that NPV equals zero and the initial cost equals the present value of the operating cash flow.
$79,500 = OCF({1 – [1 / 1.144]} / .14)
OCF = $27,284.78
DOL = 1 + ($57,000/$27,284.78) = 3.09
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