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Assignment Solution Corporate Finance Fall 2020: Requirement 1 and 2

The document analyzes two corporate finance policies, X and Y, comparing their sales, costs, profits, and degrees of operating leverage under different economic conditions. Though policy Y has higher variable costs, it has much lower fixed costs, resulting in lower operating leverage and less variability in profits with changing sales.

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KASHIF
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67 views1 page

Assignment Solution Corporate Finance Fall 2020: Requirement 1 and 2

The document analyzes two corporate finance policies, X and Y, comparing their sales, costs, profits, and degrees of operating leverage under different economic conditions. Though policy Y has higher variable costs, it has much lower fixed costs, resulting in lower operating leverage and less variability in profits with changing sales.

Uploaded by

KASHIF
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ASSIGNMENT SOLUTION

CORPORATE FINANCE FALL 2020


Requirement 1 and 2:
Variables Policy X Policy Y
(Rs.) Recession Normal Boom Recession Normal Boom
Sales 190000 240000 360000 190000 240000 360000
Variable
Cost 133000 168000 252000 161500 204000 306000
Fixed Cost 60000 60000 60000 20000 20000 20000
Profit -3000 12000 48000 8500 16000 34000
DOL -19 6 2.25 3.4 2.3 1.6

Requirement 3:
Policy X
Requirement 4:
Policy Y
Though the variable cost is high under policy Y, but fixed cost is relatively reduced
by three times when compared with policy X. So, lower the fixed cost, lower will
be the degree of operating leverage. Due to this, variation in sales due to economic
condition is causing less variability in profit.

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