Response to the following problem:
The Gearing Company has provided you with the following information regarding their operating and financing costs:
|
Price per unit
|
=
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$50
|
|
Variable cost per unit
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=
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$30
|
|
Fixed operating cost
|
=
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$100,000
|
|
Fixed financing cost
|
=
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$50,000
|
a. Calculate its degree of operating leverage at 10,000 units sold.
b. Calculate its degree of financial leverage at 10,000 units sold.
c. Calculate its degree of total leverage at 10,000 units sold.
d. If there is a 1% increase in units sold, what do you expect to be the change in operating cash flows?
e. If there is a 3% decrease in units sold, what do you expect to be the change in cash flows to owners?