Calculate the degree of financial leverage for the firm

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Reference no: EM131997919

Below is Income Statement information for Frieda’s Fresh Foods Inc.

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’s sales decrease by 15%, what percentage change in EPS would you expect to observe?

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

Reference no: EM131997919

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