TCA Cable has fixed operating cost of $2.6 million, and its variable cost ratio is 0.30.TCA has $4.0 in bonds outstanding with a coupon interest rate of 12%.TCA has 1.0 million common shares and 1,000,000 shares of $1.75 preferred stock outstanding.Total revenues for TCA Cable are $14.2 million.If TCA has a marginal tax rate of 40%, what is its degree of combined leverage?
A)2.1
B)1.0
C)1.9
D)2.5

Question

Quizplus · Accepted Answer

DCL = $\frac { 14.2 - 4.26 } { [ 7.34 - 0.48 - 1.75 / ( 1 - 0.4 ) ] } = \frac { 9.94 } { 3.944 } = 2.52$

TCA Cable Has Fixed Operating Cost of $2