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If we consider the effect of taxes, then the degree of operating leverage can be written as. DOL = 1 + [FC * (1 T2 - Tc*D]/OCF Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $5,800,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1.400.000 and that variable costs should be $265 per ton, accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $775.000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $380 per ton. The engineering department estimates you will need an initial net working capital investment of $560.000. You require a return of 14 percent and face a tax rate of 25. a. What is the percentage change in OCF if the units sold changes to 29.000? (Do not round intermediate calculations and enter your answer as a percent rounded to 4 decimal places, e.g., 32.1616.) b. What is the DOL at the base-case level of output? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g.. 32.1616.) 0/0 Change in OCF b. DOL

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