A Company Currently Sells 75,000 Units Annually

question 14

Multiple Choice

A company currently sells 75,000 units annually.At this sales level,its EBIT is $4 million,and its degree of total leverage is 2.0.The firm's debt consists of $15 million in bonds with a 9.5% coupon.The company is considering a new production method which will entail an increase in fixed costs but a decrease in variable costs,and will result in a degree of operating leverage of 1.375.The president,who is concerned about the stand-alone risk of the firm,wants to keep the degree of total leverage at 2.0.If EBIT remains at $4 million,what dollar amount of bonds must be retired to accomplish this?

• A) $2,118,421.05
• B) $1,381,578.95
• C) $1,842,105.26
• D) $1,528,947.37
• E) $2,192,105.26

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Definitions:

Counterculture

A subculture whose values and norms of behavior differ substantially from those of mainstream society, often in opposition to mainstream cultural norms.

Unique Pattern

A distinctive or singular configuration or arrangement, often referring to behaviors, designs, or sequences.

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The core beliefs and principles that are widely accepted and upheld within a society, organization, or group.

Japanese Organizations

Entities characterized by a specific culture and business practices unique to Japan, often emphasizing consensus and harmony.