The Simmons Company expects earnings of $30 million next year. Its dividend payout ratio is 40 percent, and its proportion of debt (debt/assets ratio) is 55 percent. Simmons uses no preferred stock.
a. What amount of retained earnings does Simmons expect next year?
b. At what amount of financing will there be a break point in the MCC schedule?
c. If Simmons can borrow $12 million at an interest rate of 11 percent another $12 million at a rate of 12 percent, and any additional debt at a rate of 13 percent, at what points will rising debt costs cause breaks in the MCC schedule?