Use the Information for the Question(s)below

question 30

Multiple Choice

Use the information for the question(s) below.
Fly by Night Aviation (FBNA) expects to have net income next year of $24 million and interest expense of $3 million.FBNA's corporate tax rate is 21%.
-IF FBNA increases leverage so that its interest expense rises by $1 million,then the amount its unlevered EBIT will change is closest to:

• A)$0.
• B)-$400,000.
• C)$600,000.
• D)$400,000.

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Definitions:

Elaboration Likelihood Model

A theory explaining how people process persuasive messages, differentiating between a central route of careful scrutiny and a peripheral route of cues external to the message.

Personal Relevance Theory

The hypothesis that people pay more attention to and are more likely to remember information that they find personally relevant or meaningful.

Psychological Reactance

A behavioral response to perceived threats to one’s autonomy, often resulting in opposition to being controlled.

Boomerang Effect

A situation where the opposite of the intended effect occurs, especially in a social or psychological context, such as when trying to persuade results in resistance.