A Company Currently Sells 75,000 Units Annually

question 33

Multiple Choice

A company currently sells 75,000 units annually. At this sales level, its EBIT is $4 million, and its degree of total leverage is 2.0. The firm's debt consists of $15 million in bonds with a 9.5% coupon. The company is considering a new production method which will entail an increase in fixed costs but a decrease in variable costs, and will result in a degree of operating leverage of 1.600. The president, who is concerned about the stand-alone risk of the firm, wants to keep the degree of total leverage at 2.0. If EBIT remains at $4 million, what dollar amount of bonds must be retired to accomplish this?

• A) $6,250,000
• B) $6,907,895
• C) $6,578,947
• D) $5,937,500
• E) $5,640,625

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Definitions:

Existential Counseling

A therapeutic approach focusing on creating meaning and addressing existential concerns like death, freedom, isolation, and meaninglessness.

Loneliness

A subjective feeling of isolation or lack of companionship, which can occur even when physically surrounded by others.

Responsibility

The obligation to carry out tasks, make decisions, and be accountable for their outcomes.

Existential Concept

An idea related to existentialism, focusing on human freedom, choice, and the search for meaning in an inherently meaningless world.