McGee Corporation has fixed operating costs of $5 million and a variable cost ratio of 0.60. The firm has a $17 million, 10 percent bank loan and a $4 million, 12 percent bond issue outstanding. The...

McGee Corporation has fixed operating costs of $5 million and a variable cost ratio of 0.60. The firm has a $17 million, 10 percent bank loan and a $4 million, 12 percent bond issue outstanding. The firm has 0.7 million shares of $5 (dividend) preferred stock and 1.8 million shares of common stock ($1 par). McGee’s marginal tax rate is 40 percent. Sales are expected to be $80 million.

1. 
   

   Compute McGee’s degree of operating leverage at an $80 million sales level. Round your answer to two decimal places.
   

   
   


2. 
   

   Compute McGee’s degree of financial leverage at an $80 million sales level. Round your answer to two decimal places.
   

   
   


3. 
   

   If sales decline to $76 million, forecast McGee’s earnings per share. Round your answer to the nearest cent.
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