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McGonnigal Inc. has expected sales of $45 million. Fixed operating costs are $6 million, and the variable cost ratio is 55 percent. McGonnigal has outstanding a $6 million, 9 percent bank loan and $3 million in 10 percent coupon-rate bonds. McGonnigal has outstanding 350,000 shares of a $12 (dividend) preferred stock and 1 million shares of common stock ($1 par value). McGonnigal's average tax rate is 35 percent, and its marginal rate is 40 percent. Assume that the average rate does not change with a change in sales and EBIT. Problem 1: What is McGonnigal's degree of operating leverage at a sales level of $45 million? Round your answer to three decimal places.
Problem 2: What is McGonnigal's current degree of financial leverage? Round your answer to three decimal places.
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