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What is the degree of operating leverage

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Question - You are considering a new product. It will cost $966,000 to launch, have a 3-year life, and no salvage value. Depreciation is straight-line to zero. The required return is 20%, and the tax rate is 30%. Sales are projected at 80 units per year. Price per unit will be $40,000, variable cost per unit is $24,000 and fixed costs are $500,000 per year. Operating cash flows have been calculated for you as 642,600 per year.

Required -

1. What is the accounting break-even for this project?

2. What is the degree of operating leverage?

Reference no: EM132549296

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