Kermit's hardware's (kh) fixed operating costs are $20.8 million and its variable cost ratio is 0.30. the firm has $10 million in bonds outstanding with a coupon interest rate of 9%. kh has 200,000 shares of common stock outstanding. the firm has revenues of $32.2 million and its marginal tax rate is 40%. compute kh's degree of total leverage. a. 26.8 b. 5.5 c. 29.1 d. 4.7

Option (a) is correct.

Explanation:

EBIT:

= Revenues - Fixed operating costs - (variable cost ratio × revenues)

= $32.2 - $20.8 - (0.30 × 32.2)

= 1.74  million

KH's degree of total leverage:

= (EBIT + Fixed cost) ÷ (EBIT - Interest)

= (1.74 + 20.8) ÷ [(1.74 - (9% × 10)]

= 26.83

Therefore, the KH's degree of total leverage is 26.83.

answer; niosh, the national institute for occupational safety and health;

reducing the scale of the market for a new product.