McGee Corporation has fixed operating costs of $10 million and a variable cost ratio of 0.65. The

Question:

McGee Corporation has fixed operating costs of $10 million and a variable cost ratio of 0.65. The firm has a $20 million, 10 percent bank loan and a $6 million, 12 percent bond issue outstanding. The firm has 1 million shares of $5 (dividend) preferred stock and 2 million shares of common stock ($1 par).McGee’s marginal tax rate is 40 percent. Sales are expected to be $80 million.

a. Compute McGee’s degree of operating leverage at an $80 million sales level.

b. Compute McGee’s degree of financial leverage at an $80 million sales level.

c. If sales decline to $76 million, forecast McGee’s earnings per share.

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... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...