Ouflung Computers Has $1,000 in Revenue This Year, Along with COGS

question 10

Multiple Choice

Ouflung Computers has $1,000 in revenue this year, along with COGS of $400 and SG&A of $100. The required rate of return on its equity is 14%, and the risk-free rate is 5%. Assume that the COGS only includes the marginal costs of selling a computer. Banana is considering adding $700 worth of debt with a coupon rate of 5% and a YTM of 7.9% to its capital structure M&M Proposition 2: What is the profit of Outflung without and with the debt?

• A) $500, $484.20
• B) $484.20, $500
• C) $500, $465
• D) $490, $500

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Definitions:

Note-Taking

The practice of recording information from various sources and contexts in a systematic way.

Binders

Tools or devices used for holding together pages or other materials for organization and protection.

Market for Paper

An economic marketplace involving the buying, selling, and trading of paper products, including raw materials for paper and finished products like books and magazines.

Economic Order Quantity

A formula used in inventory management to determine the optimum order quantity that minimizes total inventory holding costs and ordering costs.