TCA Cable Has Fixed Operating Costs of $2

question 3

Multiple Choice

TCA Cable has fixed operating costs of $2.6 million, and its variable cost ratio is 0.30. TCA has $4.0 million 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

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Definitions:

Firefighter's Helmet

A firefighter's helmet is designed to protect firefighters from heat, falling objects, and other hazards while combating fires.

Excludable

A characteristic of a good or service that means it can be restricted to paying customers only.

Rival In Consumption

A characteristic of a good whereby one person's consumption reduces its availability for another person.

Externality

An externality is a consequence of an economic activity experienced by unrelated third parties; it can be either positive (beneficial) or negative (harmful).