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Expert-verified Found in: Page 400 ### Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

# OceanGate sells external hard drives for $200 each. Its total fixed costs are$30 million, and its variable costs per unit are $140. The corporate tax rate is 30%. If the economy is strong, the firm will sell 2 million drives, but if there is a recession, it will sell only half as many. What is the firm’s degree of operating leverage? If the economy enters a recession, what will be the firm’s after-tax profit? Answer Net profit = 63 and 21 DOL= 2.00 See the step by step solution ### Step by Step Solution ## Step by Step Solution Step 1: Given information Normal sale = 2 million Recession sale = 1 million Price =$200 per unit

Variable cost = \$140 per unit

## Step 1: Calculation of after tax profit (net income) ## Step 2: Calculation of degree of operating leverage

Since percentage change in sales and percentage change of profit = 100%

So, Degree of Operating leverage = 200/100 = 2.00 ### Want to see more solutions like these? 