Computation of various leverages

Reference no: EM1316156

A firm has a sales of $10 million, variable costs of $5 million, EBIT of $2 million, and a degree of combined leverage of 3.0.

a. If the firm has no preferred stock, what are its annual interest charges?

b. If the firm wishes to lower its degree of combined leverage to 2.5 by reducing interest charges, what will the new level of annual interest charges be?

Reference no: EM1316156

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