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| Teaching Since: | May 2017 |
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| Questions Answered: | 66690 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
12. Connely, Inc., expects sales of silicon chips to be $30 million this year. Because this is a very capital-intensive business, fixed operating costs are $10 million. The variable cost ratio is 40 percent. The firm’s debt obligations consist of a $2 million, 10 percent bank loan and a $10 million bond issue with a 12 percent coupon rate. The firm has 100,000 shares of preferred stock outstanding that pays a $9.60 dividend. Connely has 1 million shares of common stock outstanding, and its marginal tax rate is 40 percent. Compute the following for Connely: a. Degree of operating leverage b. Degree of financial leverage c. Degree of combined leverage d. EPS if sales decline by 5 percent
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