21. The prices for the Red Star Corporation for the first quarter of the last gi
ID: 2641241 • Letter: 2
Question
21. The prices for the Red Star Corporation for the first quarter of the last given year are below. Find the holding period (percentage return) for February. Round to 2 decimals
Jan $23
Feb $25
Mar $21
24. Fun Stones Inc is producing new headphones but first managements wants to first determine its degrees of operating leverage. Fun Stones, Inc., has a base level of 477,810 units, Sales price per unit $137.75 and variable cost per unit is $94.08. Total annual operating fixed costs are $6,130,240.
Explanation / Answer
21) Holding period return = P1-P0/Po x 100
Where, P1 = Price at time 1 = $25
Po = Price at time 0 = $23
HPR = $25 - $23/$23 x 100
HPR = 8.70%
24) Degree of operating leverage,DOL = [Q(S-V)] / [Q(S-V)-F]
Where, Q = Quantity in units
S = Sales price per unit
V = Variable cost per unit
F = Fixed cost
DOL = [477,810($137.75-$94.08)] / [477,810($137.75-$94.08) - $6,130,240
DOL =20,865,962.7 /14,735,722.7
DOL = 1.416
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