Kermit's Hardware's (KH) fixed operating costs are $20.8 million and its variable cost ratio is 0.30. The firm has $10 million in bonds outstanding with a coupon interest rate of 9%. KH has 200,000 shares of common stock outstanding. The firm has revenues of $32.2 million and its marginal tax rate is 40%. Compute KH's degree of total leverage.
Degree of total leverage = Contribution Margin / (operating profits - Interest)
Revenues = 32.2 ...
Explains how to calculate the degree of total leverage when operating fixed costs, variable cost ratio, revenues, debt, no. of shares outstanding, coupon interest rate and tax rate is given.