Ura benefit from increasing or decreasing its use of debt

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Reference no: EM131354150

URA, Incorporated, has operating income of $5 million, total assets of $45 million, outstanding debt of $20 million, and annual interest expense of $3 million.

a. What is URA’s indifference level of EBIT?

b. Given its current situation, might URA benefit from increasing or decreasing its use of debt? Explain.

c. Suppose forecasted net income is $4 million next year. If it has a 40 percent average tax rate, what will be its expected level of EBIT? Will this forecast change your answer to Part b? Why or why not?

(In each case please show your work.)

Reference no: EM131354150

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