Kermit's Hardware's (KH) Fixed Operating Costs Are $20

Multiple Choice

Kermit's Hardware's (KH) fixed operating costs are $20.8 million, and its variable cost ratio is 0.30. The firm has $10 million in bonds outstanding with a coupon interest rate of 9%. KH has 200,000 shares of common stock outstanding. The firm has revenues of $32.2 million, and its marginal tax rate is 40%. Compute KH's degree of financial leverage.

A) 1.22
B) 2.07
C) 1.09
D) 1.04