Unformatted text preview: fly discuss the graph of the two financing plans. LG1 LG2 12–13 Integrative—Multiple leverage measures Play-More Toys produces inflatable
beach balls, selling 400,000 balls a year. Each ball produced has a variable oper- LG2 CHAPTER 12 Leverage and Capital Structure 549 ating cost of $0.84 and sells for $1.00. Fixed operating costs are $28,000. The
firm has annual interest charges of $6,000, preferred dividends of $2,000, and a
40% tax rate.
a. Calculate the operating breakeven point in units.
b. Use the degree of operating leverage (DOL) formula to calculate DOL.
c. Use the degree of financial leverage (DFL) formula to calculate DFL.
d. Use the degree of total leverage (DTL) formula to calculate DTL. Compare
this to the product of DOL and DFL calculated in parts b and c.
LG2 LG1 12–14 Integrative—Leverage and risk Firm R has sales of 100,000 units at $2.00 per
unit, variable operating costs of $1.70 per unit, and fixed operating costs of
$6,000. Interest is $10,000 per year. Firm W has sales of 100,000 units at...
View Full Document