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Problem 17-27 10 points OceanGate sells external hard drives for $230 each
Problem 17-27 10 points OceanGate sells external hard drives for $230 each. Its total fixed costs are $27 million, and its variable costs per unit are $150. The corporate tax rate is 43%. If the economy is strong, the firm will sell 7 million drives, but if there is a recession, it will sell only half as many. eBook a. What will be the percentage decline in sales if the economy enters a recession? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Print References Percentage decline in sales % b. What will be the percentage decline in profits if the economy enters a recession? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Percentage decline in profits c. Calculate the operating leverage of this firm? (Round your answer to 2 decimal places.) DOL
Expert Solution
1.
=(0.5)/1-1=-50.00%
2.
=(3.5*(230-150)-27)/(7*(230-150)-27)-1=-52.5328330206379%
3.
=7*(230-150)/(7*(230-150)-27)
=1.05065666
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