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A project generates $7,000 in revenue each year. It has the following costs: fixed cost:$1,200/year variable cost: 65%of...

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Finance

A project generates $7,000 in revenue each year. It has thefollowing costs:

fixed cost:$1,200/year

variable cost: 65%of revenue

depreciation: $400/year

A) If sales increases by 20%, what will be the increase inpretax profits? (Hint: Calculate the base case pretax first thenapply the sales growth)

B) What is the degree of operating leverage (DOL) for thisproject?

Answer & Explanation Solved by verified expert
4.3 Ratings (847 Votes)
Question A Solution Calculation of increase in Pre tax profit level Increased new sales revenue 7000 20 of 7000 7000 1400 8400 Particulars Amount in When sales revenue 7000    See Answer
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Transcribed Image Text

A project generates $7,000 in revenue each year. It has thefollowing costs:fixed cost:$1,200/yearvariable cost: 65%of revenuedepreciation: $400/yearA) If sales increases by 20%, what will be the increase inpretax profits? (Hint: Calculate the base case pretax first thenapply the sales growth)B) What is the degree of operating leverage (DOL) for thisproject?

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