Oak Barrel Company Has Net Operating Income of $10 Million

question 82

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 12 percent; and the corporate tax rate is 35 percent.What is the gain from leverage if the personal tax rate on stock income is 15 percent and the personal tax rate on debt income is 30 percent?

• A) $22.34 million
• B) $19.41 million
• C) $16.86 million
• D) $12.19 million

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Definitions:

Guano

Accumulated excrement of seabirds and bats, used as a fertilizer due to its high nitrogen, phosphate, and potassium content.

Phosphorus Cycle

The biogeochemical cycle that describes the movement of phosphorus through the lithosphere, hydrosphere, and biosphere.

Denitrification

The microbial process of reducing nitrates or nitrites typically in soil, resulting in the escape of nitrogen gases back into the atmosphere.

Nitrate

A compound containing nitrogen and oxygen that is commonly found in fertilizers and can cause environmental issues in water systems.