Question
American Airlines fixed operating costs are $5.8 million, and its variable cost ratio is 0.20. The firm has $ 2 million in bonds outstanding with
American Airlines fixed operating costs are $5.8 million, and its variable cost ratio is 0.20. The firm has $ 2 million in bonds outstanding with a coupon interest rate of 8 percent. American Airline has 30 thousand shares of preferred stock outstanding which pays $ 2.00 annual dividend. There are 100, 000 shares of common stock outstanding. Revenues for the firm are $ 8 million and the firm is the 40 percent corporate income tax bracket.Compute Airlines degree of operating leverage (DOL).Compute its degree of financial leverage .Compute the degree of combined leverage and interpret this value. Compute the firms breakeven dollar sales volume
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