Consider a four-year project with the following information: initial fixed asset investment = $570,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $30; variable costs = $22; fixed costs = $210,000; quantity sold = 87,000 units; tax rate = 32%. a. What is the degree of operating leverage at the given level of output? b. What is the degree of operating leverage at the accounting break-even level of output?

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
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Chapter11: Cash Flow Estimation And Risk Analysis
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Consider a four-year project with the following
information: initial fixed asset investment = $570,000;
straight-line depreciation to zero over the four-year life;
zero salvage value; price = $30; variable costs = $22;
fixed costs = $210,000; quantity sold = 87,000 units; tax
rate = 32%.
a. What is the degree of operating leverage at the given
level of output?
b. What is the degree of operating leverage at the
accounting break-even level of output?
Transcribed Image Text:Consider a four-year project with the following information: initial fixed asset investment = $570,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $30; variable costs = $22; fixed costs = $210,000; quantity sold = 87,000 units; tax rate = 32%. a. What is the degree of operating leverage at the given level of output? b. What is the degree of operating leverage at the accounting break-even level of output?
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