Financial Management:Leverage and Capital Structure

ASSIGNMENT

JMC Corp. sells 500,000 bottles of its herbal soda drinks per year. Each bottle produced is sold for $0.45 and has a variable cost of $0.25. The fixed operating costs for the firm are $50,000. The corporate tax for the firm is 40%.

Requirements:
Calculate Business Risk
Calculate the Operating Leverage or Degree of Operating Leverage (DOL) for JMC Corp.

*****JMC Corp. also wants to double its sales to 1,000,000 bottles next year. Towards that it plans to restructure its capital. It is currently financed entirely by equity of $200,000. It plans to reduce its equity 50% and borrow long-term debt of $200,000 @ 5% interest cost.