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NEW QUESTION: 1
A company has an EBIT of $4 million, and its degree of total leverage is 2.4. The firm's debt consists of
$20 million in bonds with a 10 percent yield to maturity. The company is considering a new production process that will require an increase in fixed costs but a decrease in variable costs. If adopted, the new process will result in a degree of operating leverage of 1.4. The president wants to keep the degree of total leverage at 2.4. If EBIT remains at $4 million, what amount of bonds must be outstanding to accomplish this (assuming the yield to maturity remains at 10 percent)?
A. $16.7 million
B. $18.5 million
C. $19.2 million
D. $20.1 million
E. $19.8 million
Answer: A
Explanation:
Explanation/Reference:
Explanation:
First, find the new DFL:
DTL = (DOL)(DFL)
2.4 = (1.4)(DFL)
DFL = 1.7143.
Then, find the new interest payments in a year:
DFL = (EBIT)/(EBIT - I)
1.7143 = ($4,000,000)/($4,000,000 - I)
I = $1,666,686.11.
Finally, solve for the new debt level, knowing that the yield to maturity remains at 10%. Debt Value(YTM) = Interest Payment Debt(0.10) = $1,666,686.11
Debt = $16,666,861.11 = $16.7 million.

NEW QUESTION: 2
The BEST way to obtain senior management support for investment in a control implementation would be to articulate the reduction in:
A. inherent risk.
B. residual risk.
C. vulnerabilities.
D. detected incidents.
Answer: A

NEW QUESTION: 3
Which of the following are established by Fair Labor Standards Act (FLSA) of 1938?
Each correct answer represents a complete solution. Choose all that apply.
A. Criteria for exempt and nonexempt employees
B. Health insurance requirement
C. Minimum wage requirement
D. Laws for protecting American children against labor exploitation
Answer: A,C,D
Explanation:
Explanation/Reference:
Answer options D, C, and A are correct.
The Fair Labor Standards Act (FLSA) of 1938 established the following:
1. Minimum wage requirement
2. Laws for protecting American children against labor exploitation
3. Criteria for exempt and nonexempt employees
Answer option B is incorrect. Health insurance requirement are not established by FLSA.
Reference: "http://en.wikipedia.org/wiki/Fair_Labor_Standards_Act"
Chapter: Compensation and Benefits
Objective: Compensation