A Firm Has a Current Capital Structure Consisting of $400,000

question 81

Multiple Choice

A firm has a current capital structure consisting of $400,000 of 12 percent annual interest debt and 50,000 shares of common stock. The firm's tax rate is 40 percent on ordinary income. If the EBIT is expected to be $200,000, two EBIT-EPS coordinates for the firm's existing capital structure are ________.

• A) ($36,000, $0) and ($200,000, $3.04)
• B) ($48,000, $0) and ($200,000, $1.82)
• C) ($0, $48,000) and ($200,000, $1.82)
• D) ($152,000, $3.50) and ($150,000, $1.82)

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Definitions:

Cost-plus-fixed-fee Pricing

A pricing strategy where the selling price is determined by adding a fixed fee or profit margin to the total cost of manufacturing or producing the product.

Yield Management Pricing

A pricing strategy that involves adjusting prices based on changing demand and supply conditions, often used in industries like airlines and hotels to maximize revenue.

Cost-plus-percentage-of-cost Pricing

A pricing strategy where the selling price is determined by adding a specific percentage of markup to the product's cost.

Target Return On Investment Pricing

Pricing strategy where the price is set based on the desired return on investment.