BUSINESS 2121-McMichael, Inc has expected sales of $40 million

3. McMichael, Inc has expected sales of $40 million. Fixed operating cost is $5 million and the variable cost ratio is 65 percent. They have outstanding debt of $10 million at an interest rate of 10 percent and $3million in a 12 percent bond. McMichael has 250,000 shares of preferred stock with a $10 dividend and 1 million shares of outstanding common stock. Their average tax rate is 35% and marginal tax rate is 40%. 1- What is the company’s DOL at its current sales level.2- What is their current DFL?3- Forecast McMichael’s EPS if sales drop to $38 million.