Albatross Airline's fixed operating costs are $5.8 million, and its variable cost ratio is 0.20. The firm has$2 million in bonds outstanding with a coupon interest rate of 8 percent. Albatross has 30,000 shares of preferred stock outstanding, which pays a $2 annual dividend? There are 100,000 shares of common stock outstanding. Revenues for the firm are $8 million, and the firm is in the 40 percent corporate income tax bracket.
a. Compute Albatross' degree of operating leverage.
b. Compute its degree of financial leverage.
