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Determine the breaking point associated with the exhausting

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Reference no: EM132538818

Nile Share Company has a debt ratio of 40% and a dividend payout ratio of 50%.

The firm expects net income of $5 million next year. Nile can borrow $6 million at an interest rate of 11%, another $6 million at a rate of 12%, and any additional debt at a rate of 13%. The firm's marginal tax rate is 35%.

Required: Determine

Question 1) The breaking point associated with the exhausting of retained earnings.

Question 2) The points where the cost of debt will increase.

Reference no: EM132538818

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