McFrugal, Inc. has expected sales of $20 million. Fixed operating costs are $2.5 million, and the variable
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McFrugal, Inc. has expected sales of $20 million. Fixed operating costs are $2.5 million, and the variable cost ratio is 65 percent. Mcfrugal has outstanding a $12 million, 8 percent bank loan. The firm also has outstanding 1 million shares of common stock ($1 par value). McFrugal’s tax rate is 40 percent.
a. What is McFrugal’s degree of operating leverage at a sales level of $20 million?
b. What is McFrugal’s current degree of financial leverage?
c. Forecast McFrugal’s EPS if sales drop to $15 million.
Common StockCommon 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...
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a Hence the degree of operating leverage is 1556 Times b ...View the full answer
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Related Book For 
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
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