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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