Compute operating and financial leverage

Assignment Help Finance Basics

Reference no: EM1361832

Illinois Tool Company's fixed operating costs are $1,260,000 and its variable cost ratio (ie variable costs as a fraction of sales) is 0.70. The firm has $3,000,000 in bonds outstanding at an interest rate of 8%. ITC has 30,000 shares of $5 preferred stock and 150,000 of common stock outstanding. ITC is in the 50% corporate income tax bracket. Forecasted sales for next year are $9 million.

1. What is ITC's degree of operating leverage at a sales level of $9 million? Verbally explain what this means.
2. What is ITC's degree of financial leverage at an EBIT level of $1,440,000? Verbally explain what this means.
3. What is ITC's degree of combined leverage at a sales level of $10 million? Verbally explain what this means.

Reference no: EM1361832

Questions Cloud

Lottery payments per year : The lottery is $60,000,000 and the state offers to pay you $3,000,000 per year for the next twenty years, or you can take the lump sum today of $29,500,000.

Define nafta and eu have certain similarities and differenc : Explain NAFTA and EU have certain similarities and differences and Are we moving more towards regional and bilateral trade arrangements than multilateral ones

Break even point for operating expanses : Highland Cable Corporation is planning an expansion of its facilities. Highland Cable is currently financed with 50% debt and 50% equity common stock par value of $10.

Shannon-fano-elias code or arithmetic code for symbols : The binary sequence s = 111111111000000111111111111111100001 = 1^9,0^6,1^16,0^4,1 was generated by a stationary two-state Markov chain with transition probabilities p1|0 = 2p0|1 = 0.2. a Shannon-Fano-Elias code or an arithmetic code for 3-bit symb..

Compute operating and financial leverage : Illinois Tool Company's fixed operating costs are $1,260,000 and its variable cost ratio is 0.70. The company has $3,000,000 in bonds outstanding at an interest rate of 8 percent.

What happens if the block is immersed in carbon disulfide : suppose the specific heats of milk and coffe are the same as that of water, and neblect the specific heat of the container.

Explain the reinforcement approach to motivation : Explain The reinforcement approach to motivation has been found to be superior to other motivational models

Interest rates and returns on assets : The yield on Treasury bonds has increased because the government wants to borrow more from the public. The demand for money will

Explain the provision for interest on late payments : Explain the provision for interest on late payments materially alter the contract and What terms in AB Can's purchase confirmation are additional terms

User Account

All Pages