Operating leverage is frequently measured as percentage increase in pretax profits after depreciation for 1% increase in sales.
a. Compute operating leverage for electric scooter project assuming unit sales are 100,000
b. Now illustrate that this figure is equal to 1 (fixed costs including depreciation divided by pretax profits).
c. Would operating leverage be higher or lower if sales were 200,000 scooters?
Year 0 Years 1 - 10
Investment 15
Revenuue 37.5
Variable cost 30
Fixed cost 3
Depreciation 1.5
Pretax profit 3 Tax 1.5
Net profit 1.5
Operating cash flow 3
Net cash flow -15 3