China America Manufacturing Is Evaluating Two Different Operating Structures Which

question 134

Essay

China America Manufacturing is evaluating two different operating structures which are described below. The firm has annual interest expense of $250, common shares outstanding of 1,000, and a tax rate of 40 percent. (a) For each operating structure, calculate
(a1) EBIT and EPS at 10,000, 20,000, and 30,000 units.
(a2) the degree of operating leverage (DOL) and degree of total leverage (DTL) using 20,000 units as a base sales level.
(a3) the operating breakeven point in units.
(b) Which operating structure has greater operating leverage and business risk?
(c) If China America projects sales of 20,000 units, which operating structure is recommended?

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Definitions:

Inference Forms

Patterns or templates of reasoning that show the logical connection between premises and conclusion.

MP

An abbreviation that could refer to Modus Ponens, a logical form where from premises of the form "If P, then Q" and "P", it's concluded that "Q".

MT

Another term for Modus Tollens, it is the form of logical argument implying the inverse of a conclusion based on the negation of its consequence.

HS

An abbreviation often referring to Hypothetical Syllogism, a logical argument form using two conditional statements to deduce a conclusion.