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Computation of operational and financial and combined leverage

Fastron expects sales of silicon chips to be $60 million this year. Because this is a very capital intensive business, fixed operating costs are $20 million. The variable cost ration is 40%. The firm's debt obligations consist of a $4 million, 10% bank loan and a $20 million bond issue with an 11 % coupon rate. They have 1 million shares of common stock outstanding and a tax rate at 40%.

A. compute degree of operating leverage

B. compute degree of financial leverage

C. compute degree of combined leverage

D.compute EPS if sales decline by 5 percent

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