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

question 20

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)$17,500,000
• C)$18,375,000
• D)$19,293,750
• E)$20,258,438

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Definitions:

Stereochemical Detail

Details about the positioning of atoms in a molecule and the impact of this positioning on the molecule's actions and reactions.

Organic Product

A compound or material derived from living organisms or produced by chemical synthesis designed to mimic natural products.

Regio-

A prefix referring to the specific region or orientation of atoms within a molecule during a chemical reaction.

Mechanism

In chemistry, a detailed description of the step-by-step process by which chemical reactions occur.