Question
5. Computing and interpreting the degree of operating leverage (DOL) It is December 31. Last year, Aberdeen Petroleum Refiners Corp. had sales of $8,000,000, and
5. Computing and interpreting the degree of operating leverage (DOL)
It is December 31. Last year, Aberdeen Petroleum Refiners Corp. had sales of $8,000,000, and it forecasts that next years sales will be $7,440,000. Its fixed costs have been and are expected to continue to be $3,200,000, and its variable cost ratio is 12.50%. Aberdeens capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 9%, and 250,000 shares of common equity. The companys profits are taxed at a marginal rate of 40%.
Given this data, complete the following sentences:
The percentage change in the companys sales is-8.40% . | |
The percentage change in Aberdeens EBIT is . | |
The degree of operating leverage (DOL) at $7,440,000 is . |
There are several ways to use and interpret a firms DOL value. Consider the following statement and indicate whether it accurately reflects the meaning or an appropriate use of a firms DOL value.
Activities that change the distribution of a firms fixed and variable cost structures, such as outsourcing, will affect a firms DOL.
True or False: This statement accurately describes a firms DOL.
False
True
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started