McFrugal, Inc. has expected sales of $20 million. Fixed operating costs are $2.5 million, and the variable cost ratio is 65 percent. McFrugal has outstanding a $12 million, 8 percent bank loan. The firm also has outstanding 1 million shares of common stock ($1 par value). McFrugal's tax rate is 40 percent.
a. What is McFrugal's degree of operatng leverage at a sales level of $20 million?
a. What is McFrugal's current degree of financial leverage?
b. Forecast McFrugal's EPS if sales drop to $15 million.
*** Remember, this service is not intended to be used as "homework completion, I am giving you the ...
This explains the computation of degree of operatng leverage