Question
Zee Productions is evaluating its operating structure which is described below to identify the operating and financial leverage it means for the business. The firm
Zee Productions is evaluating its operating structure which is described below to identify the operating and financial leverage it means for the business. The firm has an annual interest expense of $250, common shares outstanding of 1,000, and a tax rate of 40 percent. Under the operating structure, the Fixed cost is $500; the price per unit is $1 and the variable cost per unit is $0.65. A) For its operating structure, calculate EBIT and EPS at 20,000, and 30,000 units (4 marks) B) For its operating structure, calculate the degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL) using 20,000 units as a base sales level (3 marks)
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