If we consider the effect of taxes, then the degree ofoperating leverage can be written as:

  

DOL = 1 + [FC × (1 – TC) –TC × D]/OCF

  

Consider a project to supply Detroit with 27,000 tons of machinescrews annually for automobile production. You will need an initial$5,000,000 investment in threading equipment to get the projectstarted; the project will last for 5 years. The accountingdepartment estimates that annual fixed costs will be $1,200,000 andthat variable costs should be $225 per ton; accounting willdepreciate the initial fixed asset investment straight-line to zeroover the 5-year project life. It also estimates a salvage value of$575,000 after dismantling costs. The marketing departmentestimates that the automakers will let the contract at a sellingprice of $332 per ton. The engineering department estimates youwill need an initial net working capital investment of $480,000.You require a return of 11 percent and face a tax rate of 22.

  

a.	What is the percentage change in OCF if the units sold changesto 28,000? (Do not round intermediate calculations andenter your answer as a percent rounded to 4 decimal places, e.g.,32.1616.)
b.	What is the DOL at the base-case level of output? (Donot round intermediate calculations and round your answer to 4decimal places, e.g., 32.1616.)