A first saving account pays 5% compounded annually. A second saving account pays 5% compounded continuously. Which of the two in
1 answer:
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Answer: Degree of Operating Leverage
A Tech = 2.75
Z Tech = 3
Explanation:
As defined in question itself,
Degree of Operating Leverage =
As here, it is provided that profit for both the companies are same amounting $4 million.
Although the fixed cost differ by $1 million.
A Tech Degree of operating Leverage = 1 + = 2.75
Z Tech Degree of Operating Leverage = 1 + = 3
This clearly demonstrates that A Tech will reach its break even faster than the Z Tech as the ratio of fixed cost to variable cost is lower in A tech in comparison to Z Tech.