OceanGate sells external hard drives for $280 each. Its total fixed costs are $50 million, and...

90.2K

Verified Solution

Question

Finance

OceanGate sells external hard drives for $280 each. Its totalfixed costs are $50 million, and its variable costs per unit are$210. The corporate tax rate is 30%. If the economy is strong, thefirm will sell 8 million drives, but if there is a recession, itwill sell only half as many.
a. What will be the percentage decline in salesif the economy enters a recession?
b. What will be the percentage decline inprofits if the economy enters a recession?
c. Comparing your answers to (a) and (b), howwould you measure the operating leverage of this firm?

Answer & Explanation Solved by verified expert

3.6 Ratings (354 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

OceanGate sells external hard drives for $280 each. Its totalfixed costs are $50 million, and its variable costs per unit are$210. The corporate tax rate is 30%. If the economy is strong, thefirm will sell 8 million drives, but if there is a recession, itwill sell only half as many.a. What will be the percentage decline in salesif the economy enters a recession?b. What will be the percentage decline inprofits if the economy enters a recession?c. Comparing your answers to (a) and (b), howwould you measure the operating leverage of this firm?