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Finance Levarage Analysis - Calculation of financial leverage by ClassOf1

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Calculation of operational, financial and combined leverage - Fastron expects sales of silicon chips to be $60 million this year. Because this is a very capital intensive business, fixed operating costs are $20 million…..

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									              Sub: Finance                                                                   Topic: Levarage Analysis

              Question:
              Calculation of operational, financial and combined leverage.
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               Fastron expects sales of silicon chips to be $60 million this year. Because this is a very capital
              intensive business, fixed operating costs are $20 million. The variable cost ration is 40%. The
              firm’s debt obligations consist of a $4 million, 10% bank loan and a $20 million bond issue with
              an 11 % coupon rate. They have 1 million shares of common stock outstanding and a tax rate at
              40%.
              A. compute degree of operating leverage
              B. compute degree of financial leverage
              C. compute degree of combined leverage
              D.compute EPS if sales decline by 5 percent


              Solution:
                       
								
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