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Calculate the degree of operating leverage

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Reference no: EM132992701

Conly expects sales of silicon chips to be R30 million this year.

  • Because this is a very capital-intensive business, fixed operating costs are R10 million.
  • The variable cost ratio is 40%.
  • The company's debt obligations consist of a R2 million, 10% bank loan and a R10 million bond issue with a 12% coupon rate.
  • The company has 100,000 shares of preferred shares outstanding that pays a R9.60 dividend.
  • Conly has 1 million shares of common shares outstanding, and its marginal tax rate is 40%.

Required:

Problem 1: Calculate the following:

1.1. Degree of operating leverage.

1.2. Degree of financial leverage.

1.3. Degree of combined leverage.

1.4. EPS if sales decline by 5%.

Reference no: EM132992701

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