Reference no: EM133004475

Question - LUCBAN had a successful two consecutive years of operations since it has listed in NYSE. The following information has been made available

Sales in units in 2019 was 50,000 and 2020 was 70,000

Sales price per unit is at 120 while variable cost per unit is at 40

Lucban has a loan of 5,760,000 with a yearly coupon rate of 13%

Preference dividend given in 2019 and 2020 has been 2.35/share and 1.89/share respectively.

Tax rate is 30%

Number of shares outstanding for each year is detailed below:

2019 2020

Preference 10,000 12,000

Ordinary 1,000,000 ?

1. If the degree of combined leverage is 2.53, the total number of ordinary shares outstanding in 2020 is?

A. 875,000

B. 1,150,000

C. 1,200,000

D. 934,000

2. If the degree of total leverage is 2.53, the degree of financial leverage is approximately at

A. 2.00

B. 1.33

C. 2.10

D. 1.27