Million and pretax interest expense

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Reference no: EM13750751

AQ&Q has EBIT of $2 million, total assets of $10 million, stockholder's equity of $4 million and pretax interest expense of 10 percent.

a) What is AQ&Q's indifference level of EBIT?

b) Given its current situation, might it benefit from increasing or decreasing its use of debt?

c) Suppose AQ&Q's average tax rate is 40 percent. How does this affect your answer to (a) and (b)?

Reference no: EM13750751

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