Computation of financial and operating levarages

Reference no: EM1316167

Computation of financial and operating and combined levarages

Fastron Inc expects sales of silicon chips to be $60 million this year. Because this is a very capital-intensive business, fixed operating costs are $20 million. The variable cost ratio is 40%. The firm's debt obligations consist of a $4million, 10% bank loan and a $20 million bond issue with an 11% coupon rate. Fastron has 1 million shares of common stock outstanding, and its marginal tax rate is 40%

a. Compute Fastron's degree of operating leverage

b. Compute Fastron's degree of financial leverage

c. Compute Fastron's degree of combined leverage

d. Compute Fastron's EPS if sales decline by 5%

Reference no: EM1316167

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