McGonnigal Inc. has expected sales of $50 million. Fixed operating costs are $3 million, and the variable cost ratio is 75 percent. McGonnigal has outstanding a $9 million, 9 percent bank loan and $4 million in 14 percent coupon-rate bonds. McGonnigal has outstanding 200,000 shares of a $9 (dividend) preferred stock and 1 million shares of common stock ($1 par value). McGonnigal’s average tax rate is 35 percent, and its marginal rate is 40 percent. Assume that the average rate does not change with a change in sales and EBIT. What is McGonnigal’s degree of operating leverage at a sales level of $50 million? Round your answer to three decimal places. What is McGonnigal’s current degree of financial leverage? Round your answer to three decimal places. Forecast McGonnigal’s EPS if sales drop to $48.5 million. Round your answer to the nearest cent. $

McGonnigal Inc. has expected sales of $50 million. Fixed operating costs are $3 million, and the variable cost ratio is 75 percent. McGonnigal has outstanding a $9 million, 9 percent bank loan and $4 million in 14 percent coupon-rate bonds. McGonnigal has outstanding 200,000 shares of a $9 (dividend) preferred stock and 1 million shares of common stock ($1 par value). McGonnigal’s average tax rate is 35 percent, and its marginal rate is 40 percent. Assume that the average rate does not change with a change in sales and EBIT. What is McGonnigal’s degree of operating leverage at a sales level of $50 million? Round your answer to three decimal places. What is McGonnigal’s current degree of financial leverage? Round your answer to three decimal places. Forecast McGonnigal’s EPS if sales drop to $48.5 million. Round your answer to the nearest cent. $

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 13P

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