Explore BrainMass

Explore BrainMass

    Calculating leverage.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    - Fastron, Inc. expects sales of silicon chips to be $60 million this year. Because this is a very capital-intensive business, fixed operating cost are $20 million. The variable cost ratio is 40 percent. The firm's debt obligations consist of a $4 million, 10 percent bank loan and a $20 million bond issue with an 11 percent coupon rate. Fastron has 1 million shares of common stock outstanding, and its marginal tax rate is 40 percent.
    a. Compute Fastron's degree of operating leverage.
    b. Compute Fastron's degree of financial leverage.
    c. Compute Fastron's degree of combined leverage.
    d. Compute Fastron's EPS if sales decline by 5 percent..

    © BrainMass Inc. brainmass.com June 3, 2020, 9:38 pm ad1c9bdddf
    https://brainmass.com/business/financial-ratios/calculating-leverage-192098

    Solution Preview

    Fastron, Inc. expects sales of silicon chips to be $60 million this year. Because this is a very capital-intensive business, fixed operating cost are $20 million. The variable cost ratio is 40 percent. The firm's debt obligations consist of a $4 million, 10 percent bank loan and a $20 million bond issue with an 11 percent coupon rate. ...

    Solution Summary

    Given information how is leverage calculated, such as operating leverage, financial leverage, combined leverage, and if sales decline.

    $2.19

    ADVERTISEMENT