Compare the relative risk of both companies

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Company X has a sales price of $4.00 per unit and a variable cost of $3.40 per unit; fixed costs are $13,000, no debt, and sales of 250,000 units per year. Company Y has a sales price of $10.00 per unit and a variable cost of $7.00 per unit with fixed costs of $135,000 and sales of 200,000 units per year. Company Y also has interest payments of $60,000 annually. Both companies are in the 40% tax bracket.

a. compute DOL, DFL, and DCL for Company X

b. compute DOL, DFL, and DCL for Company Y

c. compare the relative risk of both companies

Reference no: EM131555362

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