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Chapter 14: Problem 7 McGee Corporation has fixed operating costs of $10 million and a variable cost ratio of 0.65. The firm has a $20
- Chapter 14: Problem 7
- 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). McGees marginal tax rate is 40 percent. Sales are expected to be $80 million.
- Compute McGees degree of operating leverage at an $80 million sales level.
- Compute McGees degree of financial leverage at an $80 million sales level.
- If sales decline to $76 million, forecast McGees earnings per share.
- 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). McGees marginal tax rate is 40 percent. Sales are expected to be $80 million.
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