9-1

McDonald Company shows the following condensed income statement information for the current year:

Revenue from sales $ 3,500,000

Cost of products sold (1,700,000)

Gross profit 1,800,000

Operating expenses:

Selling expenses $425,000

General expenses 350,000 (775,000)

Operating income 1,025,000

Other income 20,000

Interest (70,000)

Operating income before income taxes 975,000

Taxes related to operations (335,000)

Income from operations 640,000

Extraordinary loss (less applicable income

taxes of $40,000) (80,000)

Income before minority interest 560,000

Minority share of earnings (50,000)

Net income $ 510,000

Required Calculate the degree of financial leverage.