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John Tripper Soft Drinks, Inc., sells 500,000 bottles of soft drinks a year. Each bottle produced has a variable cost of $0.25 and sells for $0.45. Fixed operating costs are $50,000. The company has current interest charges of $6,000 and preferred dividends of $2,400. The corporate tax rate is 40 percent.                 (a) Calculate the degree of operating leverage, the degree of financial leverage, and the degree of total leverage

John Tripper Soft Drinks, Inc., sells 500,000 bottles of soft drinks a year. Each bottle produced has a variable cost of $0.25 and sells for $0.45. Fixed operating costs are $50,000. The company has current interest charges of $6,000 and preferred dividends of $2,400. The corporate tax rate is 40 percent.                 (a) Calculate the degree of operating leverage, the degree of financial leverage, and the degree of total leverage

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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John Tripper Soft Drinks, Inc., sells 500,000 bottles of soft drinks a year. Each bottle produced has a variable cost of $0.25 and sells for $0.45. Fixed operating costs are $50,000. The company has current interest charges of $6,000 and preferred dividends of $2,400. The corporate tax rate is 40 percent.

                (a) Calculate the degree of operating leverage, the degree of financial leverage, and the degree of total leverage. (b) Do part (a) at the 750,000 bottle sales level. (c) What generalizations can you make comparing (a) to (b) after first finding the break-even point?

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