Healthy Foods, Inc., sells 50-pound bags of grapes to the military for $10 a bag. What is the degree of combined leverage at both sales levels? Chapter 5 page 144 problem 13 in Foundations of Financial Management.
This is what I have so far can you tell me if this is correct?
For 20,000 bags: You take the DOL, which is 5, and the DFL, which is 2, 5x2 = 10
For 25,000 bags: You take the DOL 2.78 x the DFL 1.29 = 3.57
Degree of combined leverage = DOL x DFL = 3.57
t?
To calculate the degree of combined leverage, you need to multiply the degree of operating leverage (DOL) with the degree of financial leverage (DFL).
According to the information you provided, the DOL for 20,000 bags is 5, and the DFL is 2. So, the degree of combined leverage for 20,000 bags would be 5 multiplied by 2, which equals 10.
For the second scenario, with 25,000 bags, you mentioned a DOL of 2.78 and a DFL of 1.29. To calculate the degree of combined leverage, you need to multiply these two values. Therefore, 2.78 multiplied by 1.29 equals approximately 3.58 (rounded to two decimal places).
So, the corrected degree of combined leverage for the second scenario, with 25,000 bags, is approximately 3.58.