TCA Cable Has Fixed Operating Cost of $2

question 50

Multiple Choice

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

Plant Assets

These are long-term tangible assets used in the operations of a business that are not intended for resale, such as machinery, buildings, and land.

Fair Market Value

The price that a willing buyer and a willing seller would agree on for an asset in an open and competitive market.

Book Value

Book Value is the net value of a company's assets minus its liabilities, as recorded on the balance sheet.

Memorandum Entry

An accounting entry that is made in the records but does not affect the financial statements.