Degree of combined leverage.
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A firm has sales of $10 million, variable cost of $5 million, EBIT of $2 million, and a degree of combined leverage of 3.0.
a. If the firm has no preferred stock, what are its annual interest charges?
b. If the firm wishes to lower its degree of combined leverage to 2.5 by reducing interest charges, what will be the new level of annual interest charges?
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The expert provides calculations of degree of combined leverage, annual interest charges are given in solution.
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Hi,
Please see the response to your posting as below:
a. If the firm has no preferred stock, what are its annual interest charges?
Contribution = Sales -Variable cost == $10 million ...
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