Integrativemdashleverage and risk firm r has sales of 98000, Ask an Expert

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Integrative—Leverage and risk. Firm R has sales of 98,000 units at $ 1.99 per? unit, variable operating costs of $1.73 per? unit, and fixed operating costs of $6,060. Interest is $10,040 per year. Firm W has sales of 98,000 units at $2.58 per? unit, variable operating costs of $0.98 per? unit, and fixed operating costs of $62,400. Interest is $17,100 per year. Assume that both firms are in the 40% tax bracket.

a. Compute the degree of? operating, financial, and total leverage for firm R.

b. Compute the degree of? operating, financial, and total leverage for firm W.

c. Compare the relative risks of the two firms.

d. Discuss the principles of leverage that your answers illustrate.

Round answers two decimal places

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Financial Management, Finance

Category:- Financial Management
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