OceanGate sells external hard drives for $180 each. Its total fixed costs are $10 million, and...

OceanGate sells external hard drives for $180 each. Its total fixed costs are $10 million, and its variable costs per unit are $110. The corporate tax rate is 30%. If the economy is strong, the firm will sell 8 million drives, but if there is a recession, it will sell only half as many.

a. What will be the percentage decline in sales if the economy enters a recession?

b. What will be the percentage decline in profits if the economy enters a recession?

c. Comparing your answers to (a) and (b), how would you measure the operating leverage of this firm?

Expert Solution

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jeff jeffy answered 10 months ago

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