Assume JUP Has Debt with a Book Value of $20

question 54

Multiple Choice

Assume JUP has debt with a book value of $20 million,trading at 120% of par value.The firm has book equity of $20 million,and 2 million shares trading at $18 per share.What weights should JUP use in calculating its WACC?

• A)40% for debt,60% for equity
• B)50% for debt,50% for equity
• C)36% for debt,64%% for equity
• D)45% for debt,55% for equity

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Definitions:

Absorption Costing

The reporting of the costs of manufactured products, normally direct materials, direct labor, and factory overhead, as product costs.

Operating Leverage

Operating leverage describes the extent to which a company can increase its profits by increasing sales, highlighting the fixed versus variable costs structure.

Operating Income

A metric that calculates the profits realized from a business's core operations, excluding deductions of interest and taxes.

Break-even Point

The point at which total revenue equals total costs, resulting in no profit or loss for the business.