Kermit's Hardware's (KH) Fixed Operating Costs Are $20

question 24

Multiple Choice

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 financial leverage.

• A) 1.22
• B) 2.07
• C) 1.09
• D) 1.04

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Definitions:

Pacifier

A rubber, plastic, or silicone nipple given to an infant to suck upon, typically used to soothe or entertain a baby.

Rooting Reflex

An automatic response seen in newborns, where they turn their head toward any touch on their cheek or mouth, aiding in breastfeeding.

Cheek

The fleshy area located on either side of the face, below the eyes and between the nose and ear.

Neurons

Basic working units of the brain, specialized cells that transmit information to other nerve cells, muscle, or gland cells.