ZuoTi.Pro
Question

If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL = 1 + [FC (1-TD-TC DJ/OCF Co

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

a. Change in OCF

Particulars Unit Original Revised Remarks
Sales tons 27000 28000
Sales Price USD/Unit 314 314
Variable Cost USD/Unit 210 210
Contribution USD/Unit 104 104 Sales Price - Variable Cost
Total Contribution USD 2808000 2912000 Contribution per Unit * Sales in Units
Fixed Cost USD 1125000 1125000
EBITDA USD 1683000 1787000 Total Contribution - Fixed Cost
Depreciation USD 940000 940000 4700000/5
EBIT USD 743000 847000 EBITDA - Depreciation
Tax USD 178320 203280 EBIT*24%
EAT USD 564680 643720 EBIT-Tax
Depreciation USD 940000 940000
OCF USD 1504680 1583720 EAT+Depreciation

Change in OCF = 1583720/1504680-1 = 5.2529%

b. DOL

DOL = 1 + [FC*(1-t)-(t*D)]/OCF

FC = $1,125,000

Tax = 24%

Depreciation = $940,000

OCF = $1,504,680

DOL = 1 + [1125000*(1-24%) - (24%*940000)]/1504680 = 1 + 0.4151 = 1.4151

DOL = 1.4151

0 0
Add a comment
Know the answer?
Add Answer to:
If we consider the effect of taxes, then the degree of operating leverage can be written...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • If we consider the effect of taxes, then the degree of operating leverage can be written...

    If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL = 1 + [FC * (1 - Td-TCD]/OCF Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $4,800,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,150,000 and that variable costs should...

  • If we consider the effect of taxes, then the degree of operating leverage can be written...

    If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL = 1 + [FC × (1 – TC) – TC × D]/OCF Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $6,100,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,475,000 and...

  • If we consider the effect of taxes, then the degree of operating leverage can be written...

    If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL = 1 + [FC × (1 – TC) – TC × D]/OCF Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,300,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,275,000 and...

  • If we consider the effect of taxes, then the degree of operating leverage can be written...

    If we consider the effect of taxes, then the degree of operating leverage can be written as: DOL = 1 + [FC × (1 – TC) – TC × D]/OCF Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $5,800,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,400,000 and...

  • Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production....

    Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $4,700,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,125,000 and that variable costs should be $210 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value...

  • This problem concerns the effect of taxes on the various break-even measures. Consider a project to...

    This problem concerns the effect of taxes on the various break-even measures. Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial $4,400,000 investment in threading equipment to get the project started; the project will last for three years. The accounting department estimates that annual fixed costs will be $650,000 and that variable costs should be $250 per ton; accounting will depreciate the initial fixed asset investment straight-line to...

  • Consider a project to supply Detroit with 26,000 tons of machine screws annually for automobile production....

    Consider a project to supply Detroit with 26,000 tons of machine screws annually for automobile production. You will need an initial $5,500,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,325,000 and that variable costs should be $250 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value...

  • Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production....

    Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,700,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,375,000 and that variable costs should be $260 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value...

  • Consider a project to supply Detroit with 31,000 tons of machine screws annually for automobile production....

    Consider a project to supply Detroit with 31,000 tons of machine screws annually for automobile production. You will need an initial $6,300,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,525,000 and that variable costs should be $290 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value...

  • Consider a project to supply Detroit with 26,000 tons of machine screws annually for automobile production....

    Consider a project to supply Detroit with 26,000 tons of machine screws annually for automobile production. You will need an initial $5,900,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,425,000 and that variable costs should be $270 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT