Question

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?


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  • CreatedMarch 27, 2015
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