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1. AQ&Q has EBIT of $2 million, total assets of $10 million, stockholders’?

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1. AQ&Q has EBIT of $2 million, total assets of $10 million, stockholders’?

Postby cinnard » Wed Mar 28, 2012 7:08 pm

1. AQ&Q has EBIT of $2 million, total assets of $10 million, stockholders’
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? Explain.
c. Suppose we are told AQ&Q’s average tax rate is 40 percent.
How does this affect your answers to (a) and (b)?
cinnard
 
Posts: 857
Joined: Mon Mar 21, 2011 10:01 am

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