Essay
China America Manufacturing is evaluating two different operating structures which are described below. The firm has annual interest expense of $250, common shares outstanding of 1,000, and a tax rate of 40 percent. 
(a) For each operating structure, calculate
(a1) EBIT and EPS at 10,000, 20,000, and 30,000 units.
(a2) the degree of operating leverage (DOL) and degree of total leverage (DTL) using 20,000 units as a base sales level.
(a3) the operating breakeven point in units.
(b) Which operating structure has greater operating leverage and business risk?
(c) If China America projects sales of 20,000 units, which operating structure is recommended?
Correct Answer:
Verified
(a1) 
(a2) and (a3) (b) Operating struc...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
(a2) and (a3) (b) Operating struc...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q193: The higher the financial breakeven point and
Q194: The EBIT-EPS analysis tends to concentrate on
Q195: Tony's Beach T-Shirts has fixed annual operating
Q196: The levels of fixed-cost assets and funds
Q197: Because of the extensive research conducted in
Q199: Bamboo manufacturing sells its finished product for
Q200: Financial leverage may be defined as the
Q201: With the existence of fixed operating costs,
Q202: Operating leverage results from the existence of
Q203: The inexpensive nature of long-term debt in