Calculate the degree of combined leverage for the firm

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Reference no: EM131575467

Below is Income Statement information for Karlsson’s Carpets

Revenue: $3,107,262

Variable costs: 30% of revenue

Fixed costs: $1,000,000

Depreciation: $475,000

Bond Issue A: $300,000 face value, 10% coupon

Bond Issue B: $500,000 face value, 8% coupon

Bond Issue C: $900,000 face value, 12% coupon

Tax rate: 40%

Common shares issued and Outstanding: 250,000

a. Calculate the degree of operating leverage for the firm.

b. Calculate the degree of financial leverage for the firm.

c. Calculate the degree of combined leverage for the firm.

d. If the company is able to increase their sales by 15%, what percentage increase in EPS would you expect to observe? (2 marks)

e. If the sales increase by 15%, what will the new EPS be?

Reference no: EM131575467

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