Integrativelong dashâMultiple leverage measuresâââ Play-More Toys produces inflatable beachâ balls, selling 400,000 balls per year. Each ball produced has a variable operating cost of $0.89 and sells for $1.23. Fixed operating costs are $26,000. The firm has annual interest charges of $6,400â, preferred dividends of $1,900â, and a 40% tax rate.

a. Calculate the operating breakeven point in units.

b. Use the degree of operating leverageâ (DOL) formula to calculate DOL.

c. Use the degree of financial leverageâ (DFL) formula to calculate DFL.

d. Use the degree of total leverageâ (DTL) formula to calculate DTL. Compare this to the product of DOL and DFL calculated in parts â(bâ) and â(câ).

Question

Integrativelong dashâMultiple leverage measuresâââ Play-More Toys produces inflatable beachâ balls, selling 400,000 balls per year. Each ball produced has a variable operating cost of $0.89 and sells for $1.23. Fixed operating costs are $26,000. The firm has annual interest charges of $6,400â, preferred dividends of $1,900â, and a 40% tax rate. a. Calculate the operating breakeven point in units. b. Use the degree of operating leverageâ (DOL) formula to calculate DOL. c. Use the degree of financial leverageâ (DFL) formula to calculate DFL. d. Use the degree of total leverageâ (DTL) formula to calculate DTL. Compare this to the product of DOL and DFL calculated in parts â(bâ) and â(câ).

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