AQ&Q has EBIT of $2 million, total assets of $10 million, stock holders equity of $4 million, and pretax interest expense of 10 percent.
a. What is AQ&Q’s indifference level of EBIT?
b. Given its current situation, might it benefit from increasing or decreasing its use of debt? explain.
c. Suppose we are told AQ&Q’s average tax rate is 40 percent . How does this affect your answers to a and b?
Faulkner’s fine fries inc. is thinking anout reducing its debt burden. Given the following capital structure information and an expected Ebit of $50 million (plus or minus 10percent) next year, should fff change their capital structure?