Question
If we consider the effect of taxes,then the degree of operating leverage can be written as: DOL=1 +[FC(1-td-TcD]/OCF Consider a project to supply Detroit with
If we consider the effect of taxes,then the degree of operating leverage can be written as: DOL=1 +[FC(1-td-TcD]/OCF Consider a project to supply Detroit with $25,000 tons of machine screws annually for automobile production. You will need an initial $5,400,000 investment in threading equipment to get the project started:the project will last 6 years. The accounting department estimates that annual fixed costs will be $1,300,000 and that variable costs should be $245 per ton:accounting will depreciate the initial fixed assest investment straight line to zero over the 6 year project life. It also estimates a salvage value of $675,000 after dismantling costs. The market department estimates that the automakers will let the contract at a selling price of $365 per ton. The engineering department estimates you will need an initial net working capital investment of $520,000. You require a return of 9 percent and face a tax rate of 21 percent Whatvis the percentage change 8n OCF if the units sold changes to 26,000 Whatvis DOL at the base_case level of output
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