Computation of financial leverage and forcasting the eps

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Reference no: EM1316133

Computation of financial leverage and forcasting the EPS at change in sales

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

A. compute degree of operating leverage at a sales level of $20 million

B. computes current degree of financial leverage

C. forecast EPS if sales drop to $15 million

Reference no: EM1316133

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