McGonnigal Inc. has expected sales of $35 million. Fixed operating costs are $4 million, and the variable cost ratio is 55 percent. McGonnigal has outstanding a $13 million, 13 percent bank loan and $2 million in 14 percent coupon-rate bonds. McGonnigal has outstanding 200,000 shares of an $8 (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 current degree of financial leverage? Round your answer to three decimal places.

Forecast McGonnigal's EPS if sales drop to $33.25 million. Round your answer to the nearest cent.

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