Pickens Winery has $18 million is sales (revenue), fixed operating costs of $10 million, and

variable cost ratio of 0.25. The firm has $20 million in bonds outstanding with a coupon

interest rate of 8 percent. The winery has 200,000 shares of common stock outstanding with

no dividends and 20,000 preferred stocks outstanding that pays $15 in preferred dividend

per stock. The firm is in the 40 percent corporate income tax bracket.

a)

What is the degree of operating leverage (DOL) for Pickens Winery?

b)

What is the degree of financial leverage (DFL) for Pickens Winery?

c)

What is the degree of combined leverage (DCL) for Pickens Winery?

d)

The firm's current EPS is $0.75. What would be Pickens Winery's new EPS if the firm's

sales were to increase by 5 percent?