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Firm R has sales of 105,000 units at $2.02 per​ unit, variable operating costs of $1.71...

Firm R has sales of 105,000 units at $2.02 per​ unit, variable operating costs of $1.71 per​ unit, and fixed operating costs of $6,020. Interest is $10,130 per year. Firm W has sales of 105,000 units at $2.57 per​ unit, variable operating costs of $1.01 per​ unit, and fixed operating costs of $62,800. Interest is $17,100 per year. Assume that both firms are in the 40% tax bracket.

a. Compute the degree of​ operating, financial, and total leverage for firm R.

b. Compute the degree of​ operating, financial, and total leverage for firm W.

c. Compare the relative risks of the two firms.

d. Discuss the principles of leverage that your answers illustrate.

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