JMC Corp. sells 500,000 bottles of its herbal soda drinks per year. Each bottle produced is sold
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Question:
JMC Corp. sells 500,000 bottles of its herbal soda drinks per year. Each bottle produced is sold for $0.45 and has a variable cost of $0.25. The fixed operating costs for the firm are $50,000. The corporate tax for the firm is 40%.
Requirements:
- Calculate Business Risk
- Calculate the Operating Leverage or Degree of Operating Leverage (DOL) for JMC Corp.
- JMC Corp. also wants to double its sales to 1,000,000 bottes next year. Towards that it plans to restructure its capital. It is currently financed entirely by equity of $200,000. It plans to reduce its equity 50% and borrow long-term debt of $200,000 @ 5% interest cost.
- Calculate the new:
- Degree of Operating Leverage (DOL),
- Degree of Financial Leverage (DFL) and
- Degree of Combined or Total Leverage (DCL or DTL)
- Calculate the new:
Related Book For
Basic Finance An Introduction to Financial Institutions Investments and Management
ISBN: 978-1111820633
10th edition
Authors: Herbert B. Mayo
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