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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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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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