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Carlisle Company currently sells 400,000 bottles of perfume each year. Each bottle costs $.84 to produce and sells for $1.00. Fixed costs are $28,000 per year. The firm has annual interest expense of $6,000, preferred stock dividends of $2,000 per year, and a 40% tax rate. Carlisle uses the following formulas to determine the company's leverage. Operating leverage
If Carlisle Company did not have preferred stock, the degree of total leverage woA. Decrease but not be proportional to the decrease in financial leverage. B. Decrease in proportion to a decrease in financial leverage. C. Remain the same. D. Increase in proportion to an increase in financial leverage. |