Problem
Carolina Fastener, Inc., makes a patented marine bulkhead latch that wholesales for $6.00. Each latch has variable operating costs of $3.50. Fixed operating costs are $50,000 per year. The firm pays $13,000 interest and preferred dividends of $7,000 per year. At this point, the firm is selling 30,000 latches per year and is taxed at a rate of 40%.
1) Calculate Carolina Fastener's operating breakeven point.
2) Calculate EBIT and earnings available for common shareholders of the current year.
3) Calculate the firm's degree of operating leverage (DOL).
4) Calculate the firm's degree of financial leverage (DOL).
5) Calculate the firm's degree of total leverage (DOL).