Question a

the following data is available for firm a

firm a

quantity 20,000 units

selling price kshs 20

variable cost kshs 15

fixed cost kshs 40,000

interest kshs 10,000

preferred dividend kshs 5,000

tax rate 30%

required: (8marks)

i. overall break – even point in units.

ii. degree of operating leverage.

iii. degree of financial leverage.

iv. degree of total leverage.

Match each event to its effect on the equilibrium interest rate and the amount of investment in the loanable funds market. higher interest rate, greater investment higher interest rate, less investment lower interest rate, less investment lower interest rate, greater investment immediate consumer gratification is no longer preferred by people. an efficient new source of energy effectively increases the return on owning a factory. a wave of retirees stops working and begins drawing on retirement savings.