Management has compiled the following information to determine whether or not th

Question

Management has compiled the following information to determine whether or not this new sealant should be manufactured. Projected fixed costs are $894,080 and the anticipated annual operating cash flow is $254,000.   The sealant project has an initial fixed asset requirement of $1,750,000, which would be depreciated straight-line to zero over the 10-year life of the project. What is the degree of operating leverage for this project?

A. 3.78

B. 3.92

C. 4.08

D. 4.27

E. 4.52

Management has compiled the following information to determine whether or not this new sealant should be manufactured. Projected fixed costs are $894,080 and the anticipated annual operating cash flow is $254,000. The sealant project has an initial fixed asset requirement of $1,750,000, which would be depreciated straight-line to zero over the 10-year life of the project. What is the degree of operating leverage for this project?

Explanation / Answer

1+ 894080/254000

=1+3.52

=4.52

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