Financial leverageMax Small has outstanding school loans that require a monthly payment of

$1,040.

He needs to buy a new car for work and estimates that this purchase will add

$349

per month to his existing monthly obligations. Max will have

$2,930

available after meeting all of his monthly living (operating) expenses. This amount could vary by plus or minus

10%.

a.

To

assess the potential impact of the additional borrowing on his financial leverage, calculate the DFL in tabular form for both the current and proposed loan payments using Max's available

$2,930

as a base and a

10%

change.

b. Can Max afford the additional loan payment?

c. Should Max take on the additional loan payment?

Question content area bottom

Part 1

a.

To

assess the potential impact of the additional borrowing on his financial leverage, calculate the DFL in tabular form for both the current and proposed loan payments using Max's available

$2,930

as a base and a

10%

change.

Complete the table below to compute the current DFL:(Round to the nearest dollar and the percentage change to one decimal place.)

	Current DFL
Available for making loan payments	$		+10%		$
Less: Existing monthly loan payments	$				$
Available after loan payments	$			%	$

Part 2

Complete the table below to compute the proposed DFL:(Round to the nearest dollar and the percentage change to one decimal place.)

	Proposed DFL
Available for making loan payments	$		+10%		$
Less: Proposed monthly loan payments	$				$
Available after loan payments	$			%	$

Part 3

The current DFL is

enter your response here.

(Round to two decimal places.)

Part 4

The proposed DFL is

enter your response here.

(Round to two decimal places.)

Part 5

b. Can Max afford the additional loan payment?(Select from the drop-down menu.)

Max

can

can't

afford the additional loan payment.

Part 6

c. Should Max take on the additional loan payment?

Is the statement below true or false?

False

True

. (Select from the drop-down menu.)

"Although it appears that Max can afford the additional loan payments, he must decide if, given the variability of his income, he would feel comfortable with the increased financial leverage and risk."