Ccomputation of annual interest charges for a given degree

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Computation of Annual interest charges for a given degree of combined leverage and a lowered degree of combined leverage.

A firm has sales of 10 mil, variable costs of 5 mil, EBIT of $2 mil, and a degree of combined leverage of 3.0.

1. If the firm has no preferred stock, what are its annual interest charges?

2. If the firm wishes to lower its degree of combined leverage to 2.5 by reducing interest charges, what will be the new level of annual interest charges?

Reference no: EM1310756

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