A firm has a projected EBIT of $20,000 for a new project. The funds needed for the project are $40,000. The firm can finance the project completely with debt at a pre-tax interest cost of 10%
Alternatively, the firm could finance the project with equity by selling stock at $5 per share. If there are 500,000 shares outstanding and the firm's tax rate is 40%, what is the EBIT-EPS indifference point?
A) $254,000
B) $504,000
C) $40,000
D) $20,000
E) $500,000
A
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One of the most important rules for disagreeing diplomatically is to reflect your understanding of the other's position or opinion.
Answer the following statement true (T) or false (F)
Direct costs:
A. are incurred due to a specific decision. B. are the variable costs of producing a product. C. are incurred to benefit a particular accounting period. D. can be easily traced to a particular cost object.
Capital recoveries include:
A. The cost of capital improvements. B. Ordinary repair and maintenance expenditures. C. Payments made on the principal of a mortgage on taxpayer's building. D. Amortization of bond premium. E. All of these.
Micro Enterprises has the capacity to produce 10,000 widgets a month, and currently makes and sells 9,000 widgets a month. Widgets normally sell for $6 each, and cost an average of $5 to make, including fixed costs. The monthly fixed costs are $18,000. Coyote Corp. has offered to buy 1,000 widgets at $4 each. What other factors should be taken into consideration?
A. The impact on the normal selling price of $6 B. Will an additional shift be needed to complete the order? C. Are future orders from Coyote likely? D. Does the special price comply with the Robinson-Patman Act? E. All of the above