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Question
Illinois Tool Company's (ITC) fixed operating costs are $1,260,000 and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm has $3,000,000 in bonds outstanding at an interest rate of 8 percent. ITC has 30,000 shares of $5 preferred stock and 150,000 shares of common stock outstanding. ITC is in the 50 percent corporate income tax bracket. Forecasted sales for next year are $9 million. What is ITC's degree of combined leverage at a sales level of $10 million?a. 2.00
b. 1.72
c. 2.50
d. 2.65
Answer
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Related questions
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Q:
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Q:
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Q:
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Q:
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b. relevant information is readily available for individuals and is costless to obtain
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Q:
Two prominent finance researchers (Modigliani and Miller) showed that
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b. the value of the firm is independent of its capital structure in perfect capital markets with no income taxes
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Q:
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Q:
Kenzel has an EPS of $4.20 and sales are $9 million. If the firm has a degree of operating leverage of 4.0 and a degree of financial leverage of 5.2, forecast EPS if the firm expects a 4% sales decline.
a. $0.71
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c. $4.03
d. $3.33