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Ahmad has an auto parts manufacturer. The company sells 5 5 0 ,000 parts per year. Each unit produced has a variable operating cost of
Ahmad has an auto parts manufacturer. The company sells 550,000 parts per year. Each unit produced has a variable operating cost of $4.5 and sells for $13. Fixed operating costs are $3,000,000. The firm has annual interest rate of 11.5% on its total debt which is $4,500,000. The firm also needs to pay $2.5per preferred dividend (The total preferred shares is 390,000 shares). Assume the total number of common shares is 1,000,000 common shares. There is a 35% tax rate. Given the above information compute the following: 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 to calculate DFL. d. Use the degree of total leverage (DTL) formula to calculate DFL. F. Calculate the EPS optional question
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