Calculation of various leverage

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McFrugal, Inc. has expected sales of $20 million. Fixed operating costs are $2.5 million, and the variable cost ratio is 65%. McFrugal has outstanding a $12 million, 8% bank loan. The firm also has outstanding 1 million shares of common stock ($1 par value). McFrugal's tax rate is 40%.

a) What is McFrugal's degree of operating leverage at a sales level of $20 million?

b) What is McFrugal's current degree of financial leverage?

c) Forecast McFrugal's EPS if sales drop to 15 million.

Reference no: EM1316111

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