Determine degree of financial leverage

Reference no: EM1365333

Illinois Tool Company's (ITC) fixed operating costs are $1,260,000 and its variable cost ratio (ie. variable costs are 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 shares of common stock outstanding. ITC is in the 50% corporate income tax bracket. Forecasted sales for next year are $9 million.

What is the ITC's degree of financial leverage (DFL) at an EBIT level of $1,440,000?

The answer to this problem is one of the following:
a. 1.20
b. 2.40
c. 3.00
d. 1.60

Reference no: EM1365333

Questions Cloud

Life cycle model for alliances : What are the reasons for existence of alliances in a health care system

Show the business strategy : training and development initiatives are properly aligned to business strategy.

Explain what effective course of action : Explain What effective course of action you would take in protecting and conserving our shoreline properties?

Describe the point at which diminishing returns occurs : Describe the point at which diminishing returns occurs. indicate the points that delineate the 3 stages of production.

Determine degree of financial leverage : Illinois Tool Corporation fixed operating expenses are $1,260,000 and its variable cost ratio variable costs are as a fraction of sales is 0.70.

What are the x and y components of the shell : What are the x and y components of the shell.

Implement a series of social initiatives for an organization : How would you go about developing a plan to implement a series of social initiatives for an organization? How would you prioritize elements of the plan? What steps would you need to take before implementing the plan to help ensure its successful e..

What is the total charge on earths surface implied : What is the total charge on Earth's surface implied. explain the strength and direction of an electric field.

Describe research requires the collection and interpretation : Describe Research requires the collection and interpretation of data in an attempt to resolve the problem that initiated the research

User Account

All Pages