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

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Definitions:

Machine-hour

A unit of measure representing the operation of machinery for one hour, often used as a basis for allocating manufacturing overhead costs.

Job Cost

A method used in accounting to track the costs associated with a specific job or order, capturing materials, labor, and overhead expenses.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to apply manufacturing overhead to products or job orders.

Direct Labor-hours

The total hours worked by employees who are directly involved in the manufacturing or production process of goods.