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OceanGate sells external hard drives for $288 each. Its total fixed costs are $45 million, and...

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Finance

OceanGate sells external hard drives for $288 each. Its totalfixed costs are $45 million, and its variable costs per unit are$173. The corporate tax rate is 41%. If the economy is strong, thefirm will sell 2 million drives, but if there is a recession, itwill sell only half as many.

a. What will be the percentage decline in salesif the economy enters a recession? (Negative value shouldbe indicated by a minus sign. Round your answer to2 decimal places.)

b. What will be the percentage decline inprofits if the economy enters a recession? (Negative valueshould be indicated by a minus sign. Round your answer to 2 decimalplaces.)

c. Calculate the operating leverage of thisfirm? (Round your answer to 2 decimal places.)

Answer & Explanation Solved by verified expert
4.2 Ratings (752 Votes)
a Sale Price per unit 288 Units sold in strong economy 2 million Units sold in recession Units sold in strong economy 2 2million 2 1 million Sales in strong economy Units sold in strong economy x sale price per unit 2million x 288 576 million Sales in recession Units sold in recession x sale price per    See Answer
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Transcribed Image Text

OceanGate sells external hard drives for $288 each. Its totalfixed costs are $45 million, and its variable costs per unit are$173. The corporate tax rate is 41%. If the economy is strong, thefirm will sell 2 million drives, but if there is a recession, itwill sell only half as many.a. What will be the percentage decline in salesif the economy enters a recession? (Negative value shouldbe indicated by a minus sign. Round your answer to2 decimal places.)b. What will be the percentage decline inprofits if the economy enters a recession? (Negative valueshould be indicated by a minus sign. Round your answer to 2 decimalplaces.)c. Calculate the operating leverage of thisfirm? (Round your answer to 2 decimal places.)

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