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Niagara Marine Limited (NML) makes a patented marine bulkhead latch that wholesales for $6. The variables cost of production is $3.50. Fixed operating cost are $50,000 per year. NML pays $13,000 interest and $7,000 of preferred share dividends per year. Currently, NML sells $30,000 latches a year and its tax rate is 40%.

Required:

A) Calculate the operation Breakeven point in units and sales dollar.

B) Based on the current sales volumes and its interest and preferred share cost, calculate EBIT and earnings available to comment shareholders (EAC)

C) What is the Operating Leverage for NML? why is this information useful?

D) What is the degree of Financial Leverage for NML?

E) What is the degree of total Leverage for NML?

F) Assume NML has contracted to produce and sell an additional 15,000 units for the coming year -50% more from the current year production. How the information on DOL, DLF and DTL are useful in making business decisions?

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