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

question 34

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 percent.ITC has 30,000 shares of $5 preferred stock and 150,000 shares of common stock outstanding.ITC is in the 50 percent 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:

Mentoring

A professional relationship in which an experienced person (the mentor) assists another (the mentee) in developing specific skills and knowledge that will enhance the less-experienced person’s professional and personal growth.

Coaching

A developmental process where an experienced individual, known as a coach, supports a learner in achieving specific personal or professional goals.

On-the-job Training

Practical training provided to employees at the workplace while they are doing their job.

Apprenticeships

A system of training a new generation of practitioners of a trade or profession with on-the-job training and often some accompanying study (classroom work).