Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. red hot, inc manufactures outdoor cooking stove. t

Red Hot, Inc manufactures outdoor cooking stove. The average selling price for the various units...

70.2K

Verified Solution

Question

Finance

Red Hot, Inc manufactures outdoor cooking stove. The average selling price for the various units is $600. The associated variable cost is $400 per unit. Fixed costs for the firm average is $200,000 annually. Company has $1,000,000 debt paying 12% interest.

A) How many stoves should the firm produce and sell in order to break-even? what is the dollar sales volume the firm must achieve to reach the breakeven point? Show your answers graphically too.

B) Define the Degree of Operating Leverage (DOL), calculate it, and interpret it for this firm if the firm is planning to produce and sell 2,000 units of these stoves? What does DOL reflect?

C) Given your answer to part (c), what would be the projected effect upon EBIT (in %) if the firm's sales level should increase by 20%?

D) Define the Degree of Financial Leverage (DFL), calculate it, and interpret it if the firm sells 2,000 units. What does DFL reflect?

E) Define the Degree of Total Leverage (DTL) and given the above information, calculate it and interpret for this company. What does DFL reflect?

F) Given your findings above, is Red Hot using too much debt? How can the firm decrease various risks that it faces given what you have defined above?

Answer & Explanation Solved by verified expert
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

Other questions asked by students