- Musk is a smart phone manufacturing company. Currently Musk is selling 2000 phones every year at the price of $1000 each. The average variable cost for each phone is $400. Musk currently has the debt of $1,000,000 paying 6% annual rate of interest.
The annual depreciation expense for the company is $200,000.
Musk pays rent of $5,000 each month.
The total wages of the employees for Musk are $500,000 for one year.
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Answer all the queries with regards to Musk.
If the Tax rate is 0%
- Calculate and interpret the degree of operating leverage.
- Calculate and interpret the degree of Financial leverage.
- What is the net income for the current sales and cost structure? How much will be the change in the net income (in the % terms) for the given scenarios.
- If number of units sold changes from 2000 to 1950.
- If number of units sold changed from 2000 to 2010.
- What is the break-even quantity and break-even sales?
- What is the operating break-even quantity and operating break-even sales?