What is the fixed-cost expenditure for a firm with a DOL of 4.5 that generates pretax profits of $1 million and has $600,000 in depreciation expense?
A)$1.1 million
B)$2.1 million
C)$2.9 million
D)$3.9 million DOL = 1 +
4)5 = 1 +
3)5 =
$3)5 million = fixed costs + $600,000

Question

Quizplus · Accepted Answer

DOL = 1 + (EBIT / Fixed costs)4.5 = 1 + (1,000,000 / Fixed costs)3.5 = 1,000,000 / Fixed costsFixed costs = 1,000,000 / 3.5Fixed costs = $2,857,142.86Fixed costs + Depreciation expense = $2,857,142.86 + $600,000 = $3,457,142.86

What Is the Fixed-Cost Expenditure for a Firm with a DOL