## [answered] LEVERAGE AND CAPITAL STRUCTURE UBS Ltd makes latches that s

?LEVERAGE AND CAPITAL STRUCTURE

UBS Ltd makes latches that sell for \$6.00. Each latch has variable operating costs of \$3.50. Fixed operating costs are \$50,000 per year. The firm pays \$13,000 interest and preference dividends of \$7,000 per year. Tax rate is 30%.

• a) Calculate the operating break-even point.
• b) Based on the firm?s current sales of 40,000 units per year and its interest and preference dividend costs, calculate its EBIT and net profit available for ordinary shareholders.
• c) Calculate the DOL and explain what the result means.
• d) Calculate the DFL and explain what the result means.
• e)?Calculate?the?DTL?and?explain?what?the?result?means.

(a)

Sale Price

Variable Cost

Contribution Margin =

= 6

3.5

2.5 Fixed Cost = 50000 Break Even Point (in units) =

=

= Fixed Cost / Contribution Margin

50000 / 2.5

20000 Break Even Point (revenue) =

=...

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