What is the net income of banana without and with the debt

Reference no: EM13265256

Suppose that Banana Computers has $1,000 in revenue this year, along with COGS of $400 and SG&A of $100. The required rate of return on its equity is 14%, and the risk-free rate is 5%. Assume that the COGS only includes the marginal costs of selling a computer. Banana is considering adding $700 worth of debt with a coupon rate of 5% and a YTM of 7.9% to its capital structure.

What is the net income of Banana without and with the debt?

$484.2 and $500
$490 and $500
$500 and $484.2
$500 and $465

Reference no: EM13265256

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