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

question 46

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 financial leverage at an EBIT level of $1,440,000?

• A)1.20
• B)3.0
• C)1.60
• D)1.875

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Definitions:

Mental Ability

Refers to the intellectual capability and efficiency of the brain to process information, solve problems and make decisions, analogous to cognitive ability.

Bender Gestalt II

A psychological assessment tool used to evaluate visual-motor integration skills, often used to detect developmental disorders.

Scoring System

A set of criteria used to evaluate performance or outcomes, typically in tests, competitions, or assessments.

Reliability and Validity

Key measures in research and testing, where reliability refers to consistency across time or different observers, and validity measures the accuracy and truthfulness of a test or research finding.