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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 - TO - Tcx D/OCF Consider a project to supply Detroit with 30,000 tons of machine screws annually for automobile production. You will need an initial $4.3 million investment in threading equipment to get the project started; the project will last for five years. The accounting department estimates that annual fixed costs will be $1.025 million and that variable costs should be $190 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the five-year project life. It also estimates a salvage value of $400,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $290 per ton. The engineering department estimates you will need an initial net working capital investment of $410,000. The tax rate is 22 percent. a. What is the DOL at the base-case level of output? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the percentage change in OCF if sales increase to 31,000 tons? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. DOL b. Percentage change in OCF

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