Carolina Fastener, Inc., makes a patented marine bulkhead latch that wholesales for $6.12. Each latch has variable operating costs of $3.42. Fixed operating costs are $49,600 per year. The firm pays $12,600 interest and preferred dividends of $6,600 per year. At this point, the firm is selling 31,000 latches per year and is taxed at a rate of 40%.
a. Calculate Carolina Fastener's operating breakeven point.
b. On the basis of a firm's current sales of 31,000 units per year and its interest and preferred dividend costs, calculate its EBIT and earnings available for common.
c. Calculate the firm's degree of operating leverage (DOL).
d. Calculate the firm's degree of financial leverage (DFL)
e. Calculate the firm's degree of total leverage (DTL).
f. Carolina Fastener has entered into a contract to produce and sell an additional 14,900 latches in the coming year. Use the DOL, DFL, and DTL to predict and calculate the changes in EBIT and earnings available for common. Check your work by a simple calculation of Carolina Fastener's EBIT and earnings available for common, using the basic information given.