honestly, I do not understand it.

sitt [2] Operating Leverage Here is your initial estimate for your project with three scenarios, Normal, Slump, and Boom. Now you have initial estimate for your competitors with same expected sales level. Your project requires initial investment of $5.4 Million while competitors require initial investment of S54 Million. Both projects are expected to generate OGF for next 12 years. Initial Cost Sales Variable Costs Fixed Costs YOU Competitor High DOL Moderate DOL Higher Fixed Costs High Variable Costs Normal Slump Boom Normal Slump Boom 5,400,000 5,400,000 5,400,000 5,200,000 5,200,000 5,200,000 16,000 13,000 19,000 16,000 13,000 19.000 13,000 10,563 15,438 13,440 10,920 15,920 2,000 2,000 2,000 1,560 1,560 1,560 Depreciation 450 450 450 450 450 450 = Pretax Profit 550 (13) 1,112 550 70 1,070 tax=40% Q1. What is the main difference between your project and competitors? How many % OCF changes as sales level changes under Normal condition? To answer the question, find the Degree of Operating Leverage (DOL) of your and competitor's project. You (nome) DOL= 1. (FC/OCF) OCF: (-)Cretan profet) + Dep = 1-.4 (550) + 450-180k DOL- 1 + 2000% 780 = 3.56 Comelitor OCF: 0.6 (550) + 450 = 780k DOL= 1+ 15603780= 3.0 Q2. If sales fall by 10%, what is the impact on NPV for both projects? Before calculate NPVS, Which project do you expect to have a smaller NPV If sales fall by 10%? Can those projects withstand a 10% sales drop? 1) Your Project OCF = 780 (1 - 356) = 502.32 or $502,320 To calculate the NPV: CF:-5.4M Co: 502,320 For: 12 CPT NPV at 8% = 2) Competitor's OCF = 780 (1 - 3) = 546,000 To calculate the NPV: CF : -5.2M CF, : 546,000 F: 12 CPT NPV at 8% = sitt [2] Operating Leverage Here is your initial estimate for your project with three scenarios, Normal, Slump, and Boom. Now you have initial estimate for your competitors with same expected sales level. Your project requires initial investment of $5.4 Million while competitors require initial investment of S54 Million. Both projects are expected to generate OGF for next 12 years. Initial Cost Sales Variable Costs Fixed Costs YOU Competitor High DOL Moderate DOL Higher Fixed Costs High Variable Costs Normal Slump Boom Normal Slump Boom 5,400,000 5,400,000 5,400,000 5,200,000 5,200,000 5,200,000 16,000 13,000 19,000 16,000 13,000 19.000 13,000 10,563 15,438 13,440 10,920 15,920 2,000 2,000 2,000 1,560 1,560 1,560 Depreciation 450 450 450 450 450 450 = Pretax Profit 550 (13) 1,112 550 70 1,070 tax=40% Q1. What is the main difference between your project and competitors? How many % OCF changes as sales level changes under Normal condition? To answer the question, find the Degree of Operating Leverage (DOL) of your and competitor's project. You (nome) DOL= 1. (FC/OCF) OCF: (-)Cretan profet) + Dep = 1-.4 (550) + 450-180k DOL- 1 + 2000% 780 = 3.56 Comelitor OCF: 0.6 (550) + 450 = 780k DOL= 1+ 15603780= 3.0 Q2. If sales fall by 10%, what is the impact on NPV for both projects? Before calculate NPVS, Which project do you expect to have a smaller NPV If sales fall by 10%? Can those projects withstand a 10% sales drop? 1) Your Project OCF = 780 (1 - 356) = 502.32 or $502,320 To calculate the NPV: CF:-5.4M Co: 502,320 For: 12 CPT NPV at 8% = 2) Competitor's OCF = 780 (1 - 3) = 546,000 To calculate the NPV: CF : -5.2M CF, : 546,000 F: 12 CPT NPV at 8% =