Finance Leverage : Computation of degree by ClassOf1

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									              Sub: Financial Management                                                               Topic: Leverage



              Question:
              Computation of degree of operating leverage.

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              McFrugal, Inc. has expected sales of $20 million. Fixed operating costs are $2.5
              million, and the variable cost ratio is
              65%. McFrugal has outstanding a $12 million, 8 percent bank loan. The firm also
              has outstanding 1 million shares of common stock ($1 par value). McFrugal's tax
              rate is 40%.
      
								
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