Computation of interest expenses

Reference no: EM1316124

Computation of interest expenses at required combined leverage

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

A. if the firm has no preferred stock, what are its annual interest charges?

B. 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: EM1316124

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