Question

Laurel’s Lawn Care, Ltd., has a new mower line that can generate revenues of $141,000 per year. Direct

production costs are $47,000, and the fixed costs of maintaining the lawn mower factory are $18,500 a year. The factory originally cost $0.94 million and is being depreciated for tax purposes over 20 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 40%. (Enter your answer in dollars not in millions.)

 

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Question

Modern Artifacts can produce keepsakes that will be sold for $90 each. Nondepreciation fixed costs are $1,300

per year, and variable costs are $50 per unit. The initial investment of $3,900 will be depreciated straight-line over its useful life of 5 years to a final value of zero, and the discount rate is 12%.

a.	What is the degree of operating leverage of Modern Artifacts when sales are $4,950? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Degree of operating leverage

b.	What is the degree of operating leverage when sales are $9,630? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Degree of operating leverage

c.	Why is operating leverage different at these two levels of sales?

Degree of operating leverage is higher/lower when profits are higher/lower.

when profits are .

 

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