Suppose That Banana Computers Has $1,000 in Revenue This Year

question 86

Multiple Choice

Suppose that Banana 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 include the marginal costs of selling a computer. Banana is considering adding $700 worth of debt with a coupon rate of 5% and an YTM of 7.9% to its capital structure. What percent of the firm's costs are fixed, and what percent of costs are variable with the added debt? (Round the percentage answer to two decimal places.)

• A) 27.9% and 72.1%
• B) 72.1% and 27.9%
• C) 25.23 and 74.77%
• D) 74.77% and 25.23%

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