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12. Connely, Inc., expects sales of silicon chips...




12. Connely, Inc., expects sales of silicon chips to be $30 million this year. Because this is a very capital-intensive business, fixed operating costs are $10 million. The variable cost ratio is 40 percent. The firm?s debt obligations consist of a $2 million, 10 percent bank loan and a $10 million bond issue with a 12 percent coupon rate. The firm has 100,000 shares of preferred stock outstanding that pays a $9.60 dividend. Connely has 1 million shares of common stock outstanding, and its marginal tax rate is 40 percent. Compute the following for Connely: a. Degree of operating leverage b. Degree of financial leverage c. Degree of combined leverage d. EPS if sales decline by 5 percent


Paper#8641 | Written in 18-Jul-2015

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