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.