Question
Companies A and B operate in the same field, for which the following pieces of information are given in the table below Company A Company
Companies A and B operate in the same field, for which the following pieces of information are given in the table below
| Company A | Company B
|
Q (products sold) | 150,000 | 190,000 |
P (price per product) | $80 | $70 |
FC (fixed cost) | $550,000 | $850,000 |
VC (variable cost per product) | $45 | $35 |
EBIT | $2,500,000 | $4,200,000 |
I (interest expenses) | $140,000 | $750,000 |
Find the following:
a. Degree of operating leverage for both companies, and explain your answers.
b. Degree of financial leverage for both companies, and explain your answers.
c. Degree of total leverage for both companies.
d. Which company has higher business risk, and financial risk?
e. How many product each company should sell to cover its operating expenses?
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