Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

OceanGate sells external hard drives for $270 each. Its total fixed costs are $50 million, and its variable costs per unit are $220. The corporate

OceanGate sells external hard drives for $270 each. Its total fixed costs are $50 million, and its variable costs per unit are $220. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2 million drives, but if there is a recession, it will sell only half as many.

a. What will be the percentage decline in sales if the economy enters a recession?

b. What will be the percentage decline in profits if the economy enters a recession?

c. Comparing your answers to (a) and (b), how would you measure the operating leverage of this firm?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Regulation Of Mobile Money Law And Practice In Sub Saharan Africa

Authors: Sunduzwayo Madise

1st Edition

3030138305,3030138313

More Books

Students also viewed these Finance questions