Albatross Airline’s fixed operating costs are $5.9 million, and its variable cost ratio is 0.25. The firm has $3 million in bonds outstanding with a coupon interest rate of 9 percent. Albatross has 30,000 shares of preferred stock outstanding, which pays a $2.35 annual dividend. There are 80,000 shares of common stock outstanding. Revenues for the firm are $9 million, and the firm is in the 40 percent corporate income tax bracket. Compute the following for the firm. Round your answers to three decimal places. Degree of operating leverage: Degree of financial leverage: Degree of combined leverage: Interpret this value. Enter your answer for dollar value in whole dollar. For example, an answer of $1.20 million should be entered as 1,200,000, not 1.20. From a base sales level of $ , each one percent increase in sales results in a percent increase in EPS

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Albatross Airline’s fixed operating costs are $5.9 million, and its variable cost ratio is 0.25. The firm has $3 million in bonds outstanding with a coupon interest rate of 9 percent. Albatross has 30,000 shares of preferred stock outstanding, which pays a $2.35 annual dividend. There are 80,000 shares of common stock outstanding. Revenues for the firm are $9 million, and the firm is in the 40 percent corporate income tax bracket. Compute the following for the firm. Round your answers to three decimal places.

  1. Degree of operating leverage:  

  2. Degree of financial leverage:  

  3. Degree of combined leverage:  

    Interpret this value. Enter your answer for dollar value in whole dollar. For example, an answer of $1.20 million should be entered as 1,200,000, not 1.20.

    From a base sales level of $        , each one percent increase in sales results in a            percent increase in EPS  .

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