A Corporation Has $5,000,000 in 10 Percent Bonds and $3,000,000

question 43

Multiple Choice

A corporation has $5,000,000 in 10 percent bonds and $3,000,000 in 12 percent preferred stockoutstanding. The firm's financial break-even (assuming a 40 percent tax rate) is __________.

• A) $1,100,000
• B) $1,400,000
• C) $716,000
• D) $860,000

---

Definitions:

Net Operating Income

A company's operating profit after subtracting operating expenses but before interest and taxes.

Absorption Costing

is an accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Fixed Manufacturing Overhead

The set costs involved in the production process that do not change with the level of output, such as salaries and building leases.

Inventories

Items such as products, materials, and supplies held by a company for the purpose of resale or production.