Albatross Airlines fixed operating costs are $5 8 million, and its variable cost ratio is 0 20 The firm has $2 million in bonds outstanding with a coupon interest rate of 8 percent Albatross has 30,000 shares of preferred stock outstanding, which pays a $2 00 annual dividend There are 100,000 share...

a Sales 8000000 Variable costs 28000000 1600000 Fixed costs 5800000 EBIT 8000 ...

Albatross Airlines fixed operating costs are $5.8 million, and its variable cost ratio is 0.20. The firm

Question:

Albatross Airline’s fixed operating costs are $5.8 million, and its variable cost ratio is 0.20. The firm has $2 million in bonds outstanding with a interest rate of 8 percent. Albatross has 30,000 shares of preferred stock outstanding, which pays a $2.00 annual dividend. There are 100,000 shares of outstanding. Revenues for the firm are $8 million, and the firm is in the 40 percent corporate income tax bracket.
a. Compute Albatross’s degree of operating leverage.
b. Compute its degree of financial leverage.
c. Compute its degree of combined leverage and interpret this value.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...