Yongman Electronics Has Decided to Invest $10,000,000 in a New

question 140

Essay

Yongman Electronics has decided to invest $10,000,000 in a new headquarters and needs to determine the best way to finance the construction. The firm currently has $50,000,000 of 10 percent bonds and 4,000,000 common shares outstanding. The firm can obtain the $10,000,000 of financing through a 10 percent bond issue or the sale of 1,000,000 shares of common stock. The firm has a 40 percent tax rate.
(a) What is the degree of financial leverage for each plan at $25,000,000 of EBIT?
(b) What is the financial breakeven point for each plan?

---

Definitions:

Windows Firewall

A software component of Microsoft Windows that provides firewalling and packet filtering functions, aiming to protect computers from unauthorized network access and cyber threats.

Ping Messages

A network utility tool used to test the reachability of a host on an Internet Protocol (IP) network.

Device Manager

A component of Microsoft Windows operating systems that allows users to view and control the hardware attached to the computer.

Performance Monitor

A Windows tool that monitors resources such as memory and CPU usage and that allows creation of graphs, bar charts, and text reports.