A Company Has an EBIT of $4 Million, and Its

question 23

Multiple Choice

A company has an EBIT of $4 million, and its degree of total leverage is 2.4. The firm's debt consists of $20 million in bonds with a YTM of 10%. The company is considering a new production process that will require an increase in fixed costs but a decrease in variable costs. If adopted, the new process will result in a degree of operating leverage of 1.4. The president wants to keep the degree of total leverage at 2.4. If EBIT remains at $4 million, what dollar amount of bonds must be outstanding to accomplish this (assuming the yield to maturity remains at 10%) ?

• A) $16,666,667
• B) $20,258,438
• C) $19,293,750
• D) $18,375,000
• E) $17,500,000

Understand the concept and importance of previewing in the active reading process.

Identify effective strategies for skimming and previewing textbook chapters.

Recognize the role of different types of maps in organizing chapter information.

Understand the methods and benefits of marking textbooks for better comprehension.

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