PQR Manufacturing Corporation Has $1,500,000 in Debt Outstanding

Multiple Choice

PQR Manufacturing Corporation has $1,500,000 in debt outstanding. The company's before-tax cost of debt is 10%. Sales for the year totaled $3,500,000 and variable costs were 60% of sales. Net income was equal to $600,000 and the company's tax rate was 40%. If PQR's degree of total leverage is equal to 1.40, what is its degree of operating leverage?

A) 1.2174
B) 1.3422
C) 1.2783
D) 1.1565
E) 1.0987