D&G Textile company is evaluating two different operating structures. Data about those structures are shown as image. Annual interest expense of the firm is $200, it has common shares outstanding of...

D&G Textile company is evaluating two different operating structures. Data about those structures are shown as image. Annual interest expense of the firm is $200, it has common shares outstanding of 2,000, and a tax rate of 20

• For each operating structure, calculate

(a1)EBIT and EPS at 5,000 and 10,000 units

(a2)the degree of operating leverage (DOL) and degree of total leverage (DTL) using 10,000 units as a base sales level.

(a3)the operating breakeven point in units.

• Which operating structure has greater operating leverage and business risk?


• If D&G projects sales of 10,000 units, which operating structure is recommended?