What is the degree of financial leverage

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Reference no: EM132017234

A company is analyzing the potential impact of an improving economy on the earnings. The company projects that the sales will improve by 10% due to increased demand. The company produced 6 million units last year. The average price per unit was $24,000, fixed costs were $15 billion per year and variable cost per unit are $14,000. The company can borrow at 8% and the interest cost is $40 billion.

a) What is the degree of operating leverage?

b) What is the degree of financial leverage if 6 million units are produced and sold?

Reference no: EM132017234

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