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Nike and Puma operate in the sports industry, for which the following pieces of information are given in the table below. Nike Puma Q (products

  1. Nike and Puma operate in the sports industry, for which the following pieces of information are given in the table below.

Nike

Puma

Q (products sold)

180,000

210,000

P (price per product)

$22

$37

FC (fixed cost)

$45,000

$50,000

VC (variable cost per product)

$12

$23

EBIT

$8,400,000

$6,200,000

I (interest expenses)

$1,000,000

$1,750,000

Find the following:

  1. Degree of operating leverage for both companies, and explain your answers.
  2. Degree of financial leverage for both companies, and explain your answers.
  3. Degree of total leverage for both companies.

Which company has higher business risk, and financial risk?

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