Illinois Tool Company's (ITC) Fixed Operating Costs Are $1,260,000, and Its

question 25

Multiple Choice

Illinois Tool Company's (ITC) fixed operating costs are $1,260,000, and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm has $3,000,000 in bonds outstanding at an interest rate of 8%. ITC has 30,000 shares of $5 preferred stock and 150,000 shares of common stock outstanding. ITC is in the 50% corporate income tax bracket. Forecasted sales for next year are $9 million. What is ITC's degree of combined leverage at a sales level of $10 million?

• A) 2.00
• B) 1.72
• C) 2.50
• D) 1.25

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Definitions:

Physician

A professional who practices medicine, which is concerned with promoting, maintaining, or restoring health through the study, diagnosis, prognosis, and treatment of disease, injury, and other physical and mental impairments.

Thyroid Uptake and Scan

A diagnostic test that measures the thyroid gland's ability to absorb iodine from the bloodstream, often using a small amount of radioactive substance.

Eating Fish

The consumption of fish as part of a diet, which can provide essential nutrients like omega-3 fatty acids.

Corporation

A legal entity that is separate and distinct from its owners, who are shareholders, offering limited liability but facing double taxation.