a project requires an initial.investment of $36,000 land is depreciated straight
ID: 2714597 • Letter: A
Question
a project requires an initial.investment of $36,000 land is depreciated straight-line to zero salvage over its 6-years project produces items that sell for $150 each, with variable cost of $60 per unit. fixed cost are $5,000 per year. required return on investment is 15%Find degree of operating laverage(DOL) a project requires an initial.investment of $36,000 land is depreciated straight-line to zero salvage over its 6-years project produces items that sell for $150 each, with variable cost of $60 per unit. fixed cost are $5,000 per year. required return on investment is 15%
Find degree of operating laverage(DOL)
Find degree of operating laverage(DOL)
Explanation / Answer
Degree of operating leverage (DOL) = Contribution / Profit
Profit = Investment × Rate
= $36,000 × 15%
= $5,400
Depreciation = $36,000 / 6 = $6,000
Fixed cost = $5,000 + $6,000 = $11,000
Contribution = Profit + Fixed cost
= $5,400 + $11,000
= $16,400
DOL = Contribution / Profit = $16,400 / $5,400 = 3.04 (Answer)
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