A company currently sells 75,000 units annually. At this sales level, its EBIT is $4 million, and its DTL is 2.0. The firm's debt consists of $15 million in bonds with a 9.5% coupon. The company is considering a new production method, which will entail an increase in fixed costs but a decrease in variable costs, and will result in a DOL of 1.6. Being concerned about the total risk of the firm, the CEO wants to keep the DTL at 2.0. If EBIT remains at $4 million.

What amount of bonds must be retired to accomplish this?

Answer rating: 100% (QA)

To calculate the amount of bonds that must be retired to maintain the companys DTL at 20 we can foll... View the full answer