McMichael, Inc has expected sales of $40 million. Fixed operating cost is $5 million and the variable cost ratio is 65 percent. They have outstanding debt of $10 million at an interest rate of 10 percent and $3million in a 12 percent bond. McMichael has 250,000 shares of preferred stock with a $10 dividend and 1 million shares of outstanding common stock. Their average tax rate is 35% and marginal tax rate is 40%. What is the company’s DOL at its current sales level. What is their current DFL? Forecast McMichael’s EPS if sales drop to $38 million.
McMichael, Inc has expected sales of $40 million. Fixed operating cost is $5 million and the variable cost ratio is 65 percent. They have outstanding debt of $10 million at an interest rate of 10 percent and $3million in a 12 percent bond. McMichael has 250,000 shares of preferred stock with a $10 dividend and 1 million shares of outstanding common stock. Their average tax rate is 35% and marginal tax rate is 40%. What is the company’s DOL at its current sales level. What is their current DFL? Forecast McMichael’s EPS if sales drop to $38 million.
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 13P
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McMichael, Inc has expected sales of $40 million. Fixed operating cost is $5 million and the variable cost ratio is 65 percent. They have outstanding debt of $10 million at an interest rate of 10 percent and $3million in a 12 percent bond. McMichael has 250,000 shares of
- What is the company’s DOL at its current sales level.
- What is their current DFL?
Forecast McMichael’s EPS if sales drop to $38 million.
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