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problem: Fastron, Inc. expects sales of silicon chips to be 60mil this year. Because this is a very capital intensive business, fixed operating costs are 20mil. The variable cost ratio is 40%. The firm’s debt obligations consist of a 4 dollar mil, ten percent bank loan and a 20mil bond issue with an eleven percent coupon rate. Fastron has one mil shares of common stock outstanding, and its marginal tax rate is forty percent.

[A] find out Fastron’s degree of combined leverage.

[B] find out Fastron’s EPS if sales decline by five percent.

[C] find out Fastron’s degree of operating leverage.

[D] find out Fastron’s degree of financial leverage.

 

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