Oak Barrel Company Has Net Operating Income of $10 Million

question 78

Multiple Choice

Oak Barrel Company has net operating income of $10 million.Further,the company has $80 million of debt outstanding with a required rate of return of 7 percent; the required rate of return on the industry is 11 percent; and the corporate tax rate is 40 percent.What is the gain from leverage if the personal tax rate on stock income is 20 percent and the personal tax rate on debt income is 30 percent?

• A) $22.34 million
• B) $23.77 million
• C) $24.63 million
• D) $25.14 million

---

Definitions:

Somatic

Relating to the body, especially as distinct from the mind.

Peripheral

Relating to or situated on the edge or periphery of something; often used to describe things that are not of primary importance.

Sympathetic

Pertaining to the sympathetic nervous system, part of the autonomic nervous system that activates the body's "fight or flight" response.

Peripheral Nervous System

Part of the nervous system outside the brain and spinal cord, responsible for connecting the central nervous system to the rest of the body.