A proposed project has fixed costs of $ 43,000 per year. The operating cash flow

Question

A proposed project has fixed costs of $ 43,000 per year. The operating cash flow at 8,000 units is $ 79,000. Ignoring the effect of taxes, what is the degree of operating leverage? If units sold rise from 8,000 to 8,500, what will be the increase in operating cash flow? What is the new degree of operating leverage?

so far I have gotten to the first question but I need help with the last two.

here's what I got for Question 1:

FC = 43,000
OCF at 8,000 units = 79,000

DOL = 1 + FC / OCF
DOL = 1 + 43,000 / 79,000
DOL = 1.5443

Explanation / Answer

In the first step we find increase in operating cash flow So operating cash flow at 8,000 units is $ 79,000 operating cash flow after increase is at 8,500 units is $ ? 8000----------------------$79000 8500----------------------$? 8500/8000 * 79000 = 83937.5 So the increase in operating cash flow is 83937.5 – 79000 = 4937.5 Now we look at What is the new degree of operating leverage FC = 43,000 OCF at 8,500 units = 83937.5 DOL = 1 + FC / OCF DOL = 1 + 43,000 / 83937.5 DOL = 1.5122 new degree of operating leverage is 1.5122

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