OPERATING LEVERAGE AND BREAKEVEN ANALYSIS Olinde Electronics Inc. produces stereo components that… 1 answer below »


OPERATING LEVERAGE AND BREAKEVEN ANALYSIS Olinde Electronics Inc. produces stereo components that retail at P = $100 per ace. Olinde’s agricultural requires are $200,000, shifting requires are $50 per ace, 5,000 components are produced and sold each year, EBIT is currently $50,000, and Olinde’s possessions (all equity-financed) are $500,000. Olinde can vary its evolution rule by adding $400,000 to possessions and $50,000 to agricultural frank requires. This vary would (1) lessen shifting requires per ace by $10 and (2) growth output by 2,000 aces, but (3) the sales charge on all aces would accept to be lowered to $95 to sanction sales of the joined output. Olinde has tax detriment carry-forwards that suit its tax admonish to be cipher, it uses no claim, and its middle require of chief is 10%.

a. Should Olinde mould the vary? Why or why not?

b. Would Olinde’s breakeven aim growth or lower if it made the vary?

c. Suppose Olinde was unqualified to establish joined equity financing and had to attribute the$400,000 at an cause admonish of 10% to mould the boarding. Use the DuPont equation to discover the expected ROA of the boarding. Should Olinde mould the vary if claim financing must be used? Explain.