TCA Cable Has Fixed Operating Cost of $2

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