STRATEGIC FINANCIAL MANAGEMENT

URGENT( ANSWER IN AN HOUR)

Ipanema makes flip flops that retails for $6.00. Each pair of flip flops has variable operating costs of $3.50. Fixed operating costs are $50,000 per year. The company pays $13,000 interest and preferred dividends of $7,000 per year. At this point, the company is selling 30,000 pairs of flip flops per year and is taxed at a rate of 40%.

Required:

(a) Calculate the firms degree of operating leverage (DOL). (2 marks)

(b) Calculate the firms degree of financial leverage (DFL). (3 marks)

(c) Calculate the firms degree of total leverage (DTL). (1 mark)