If a firm has the lowest possible degree of operating leverage and the lowest possible degree of financial leverage, then
DOL equals 1, and DFL equals 0.
DOL equals 0, and DFL equals 1.
DOL equals 1, and DFL equals 1.
None of the options
HI
Degree of financial leverage = EBIT/(EBIT-interest)
That means lowest DFL when interest =0
so lowest DFL = 1
Degree of operating leverage = (sales-var. cost)/(sales-var cost-fixed cost)
Degree of operating leverage is lowest when fixed cost =0
So lowest DOL also can be 1
Hence 3rd option is correct here.
THanks
If a firm has the lowest possible degree of operating leverage and the lowest possible degree...
Maham has a 2.5 DOL (degree of operating leverage) and a 2.0 DFL (degree of financial leverage). If it wants a 35% increase in EPS, what increase in sales does it need? a. 6% b. 7% c. 9% d. 35%
Epitome Analysts Resources (EAR) has provided the following information about three companies: Company Degree of Operating Leverage (DOL). Degree of Financial Leverage (DFL). Acme 1.5% 6.0x Apex 3.0x 4.0x Alps 5.0x 2.0x Which company would be considered riskiest? Why? Alps is the riskiest because it has the highest DOL among the three firms. a. Acme is the riskiest because its DFL = 6.0, which is the highest leverage associated with any of the three firms. Apex is the riskiest because...
Integrative Multiple leverage measures Play-More Toys produces inflatable beach balls, selling 380,000 balls per year. Each ball produced has a variable operating cost of $0.86 and sells for $1.25. Fixed operating costs are $32,000. The firm has annual interest charges of $6,300, preferred dividends of $1,900, and a 40% tax rate. a. Calculate the operating breakeven point in units. b. Use the degree of operating leverage (DOL) formula to calculate DOL. c. Use the degree of financial leverage (DFL) formula...
Suppose that there are two firms operating in a market. Suppose that the degree of operating leverage for Firm 1 is DOL= 1.5 while the degree of operating leverage for Firm 2 is DOL=2 How much would the profits of each firm change if both firms experienced an increase in quantity sold of 10%? Suppose instead that each firm experiences a 5% decrease in quantity sold. What would happen to the profits of each firm? Which firm’s profits are more sensitive to...
Clipe ASSIC 8. Analyzing riskiness using a firm's degree of leverage Select the degree of leverage that completes the following sentence. The is the percentage change in earnings before interest and taxes (EBIT) that results from a given percentage change in sales. Expert Analysts Resources (EAR) has provided you with the following information about three companies you are currently evaluating: Three Waters Co. General Products Co. Degree of Operating Leverage (DOL) Degree of Financial Leverage (DFL) Praxis Corp. 2.0 5.5...
How can I determine current DOL (degree of operating leverage), DFL (degree of financial leverage), and DCL (degree of combined leverage)? If maximization of earning per share is the goal, what is the indifference EBIT (EBIT*)? Also, Once the expansion is completed, the sales are expected to increase to $5,000,000. How can I calculate the new EBIT. At the new EBIT which method of financing results in a higher EPS? Calculate EPS for both plans at this new EBIT. new...
Suppose that you estimated the Degree of Operating Leverage of a firm as 1.9 and the Degree of Financial Leverage as 1.9, the Degree of Total Leverage of the firm would be ____.__. Round your answer to 2 decimal places.
HotDog Shirts, Inc. has a degree of operating leverage of 1.9. It also has a degree of financial leverage of 2.6. What is the firm’s degree of combined or total leverage if the firm is in the 30% tax bracket
Degree of operating leverage Grey Products has fixed operating costs of $389,000, variable operating costs of $16.19 per unit, and a selling price of $63.43 per unit. a. Calculate the operating breakeven point in units. b. Calculate the firm's EBIT at 10,000, 12,000, and 14,000 units, respectively. c. With 12,000 units as a base, what are the percentage changes in units sold and EBIT as sales move from the base to the other sales levels used in part (b)? d....
Degree of operating leverage Grey Products has fixed operating costs of $373,000, variable operating costs of $16.55 per unit, and a selling price of $63.45 per unit. a. Calculate the operating breakeven point in units. b. Calculate the firm's EBIT at 11,000, 13,000, and 15,000 units, respectively. c. With 13,000 units as a base, what are the percentage changes in units sold and EBIT as sales move from the base to the other sales levels used in part (b)? d....