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A company is trying to decide on its use of operating and financial leverage from among four choices. Their Interest Expense is the Interest Rate times Debt. Their Tax Rate is 40%. Option Fixed Costs Variable Costs Debt Interest Rate 1. 20,000 70% of Sales 0 0% 2. 50,000 40% of Sales 0 0% 3. 20,000 70% of Sales 500,000 10% 4. 50000 40% of Sales 500,000 10% What is their Degree of Operating Leverage under option 1 if sales are $200,000? a) 1 b) 1.5 c) 2 d) 3

A company is trying to decide on its use of operating and financial leverage from among four choices. Their Interest Expense is the Interest Rate times Debt. Their Tax Rate is 40%. Option Fixed Costs Variable Costs Debt Interest Rate 1. 20,000 70% of Sales 0 0% 2. 50,000 40% of Sales 0 0% 3. 20,000 70% of Sales 500,000 10% 4. 50000 40% of Sales 500,000 10% What is their Degree of Operating Leverage under option 1 if sales are $200,000? a) 1 b) 1.5 c) 2 d) 3

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 10P
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A company is trying to decide on its use of operating and financial leverage from among four choices. Their Interest Expense is the Interest Rate times Debt. Their Tax Rate is 40%. Option Fixed Costs Variable Costs Debt Interest Rate 1. 20,000 70% of Sales 0 0% 2. 50,000 40% of Sales 0 0% 3. 20,000 70% of Sales 500,000 10% 4. 50000 40% of Sales 500,000 10% What is their Degree of Operating Leverage under option 1 if sales are $200,000? a) 1 b) 1.5 c) 2 d) 3
Transcribed Image Text:A company is trying to decide on its use of operating and financial leverage from among four choices. Their Interest Expense is the Interest Rate times Debt. Their Tax Rate is 40%. Option Fixed Costs Variable Costs Debt Interest Rate 1. 20,000 70% of Sales 0 0% 2. 50,000 40% of Sales 0 0% 3. 20,000 70% of Sales 500,000 10% 4. 50000 40% of Sales 500,000 10% What is their Degree of Operating Leverage under option 1 if sales are $200,000? a) 1 b) 1.5 c) 2 d) 3
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