Problem:
Management has compiled the following information to determine whether or not this new sealant should be manufactured. Projected fixed costs are $894,080 and the anticipated annual operating cash flow is $254,000. The sealant project has an initial fixed asset requirement of $1,750,000, which would be depreciated straight-line to zero over the 10-year life of the project.
Requirement:
Question: What is the degree of operating leverage for this project?
A. 3.78
B. 3.92
C. 4.08
D. 4.27
E. 4.52
Note: Explain all steps comprehensively.