Martelli Drywall Manufacturing is analyzing a new type of drywall sealant for in

Question

Martelli Drywall Manufacturing is analyzing a new type of drywall sealant for interior walls. Management has compiled the following information to determine whether or not this new sealant should be manufactured. Projected fixed costs are $782,320 and the anticipated annual operating cash flow is $254,000. The sealant project has an initial fixed asset requirement of $1,750,000, which would be depreciated straight-line to zero over the 10-year life of the project. What is the degree of operating leverage for this project?

3.78

3.92

4.08

4.27

4.52

3.78

3.92

4.08

4.27

4.52

Explanation / Answer

Degree of operating leverage = 1 + Projected fixed costs/Annual operating cash flow

= 1 + $782,320/$254,000

= 4.08

Therefore, option c is correct.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.