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

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's debt consists of a $6,000,000 bond issue (par value) which pays a coupon rate of 9%. Sales are $9 million per year. What is ITC's degree of financial leverage?

A) 1.20
B) 1.875
C) 3.0
D) 1.60