Steele Insulators is analyzing a new type of insulation for interior walls. Management has compiled the following information

The accounting manager of Gateway Inns has noted that every time the inn's average occupancy rate increases by 2 percent, the operating cash flow increases by 5.3 percent. What is the degree of operating leverage if the contribution margin per unit is $47?    A.  0.38 B.  0.57 C.  1.75 D.  2.10 E.  2.65 DOL = 0.053/0.02 = 2.65

87.

Steele Insulators is analyzing a new type of insulation for interior walls. Management has compiled the following information to determine whether or not this new insulation should be manufactured. The insulation project has an initial fixed asset requirement of $1.3 million, which would be depreciated straight-line to zero over the 12-year life of the project. Projected fixed costs are $769,000 and the anticipated annual operating cash flow is $241,000. What is the degree of operating leverage for this project?    A.  3.78 B.  3.92 C.  4.19 D.  4.27 E.  4.53 Degree of operating leverage = 1 + ($769,000/$241,000) = 4.19

88.

You are the manager of a project that has a 2.8 degree of operating leverage and a required return of 14 percent. Due to the current state of the economy, you expect sales to decrease by 7 percent next year. What change should you expect in the operating cash flows next year given your sales prediction?    A.  19.60 percent decrease B.  16.03 percent decrease C.  13.46 percent decrease D.  5.60 percent decrease E.  2.74 percent decrease Percentage change in OCF = 2.8 × (-0.07) = -0.196 = 19.60 percent decrease