Green Co. has total debt of $400,000, a cost to borrow funds of 6%, and an EBIT of $42,500. From a financial perspective, Green Co. has profits at
A) breaking even.
B) lower than the breakeven point.
C) higher than the break-even point.
D) in need of new financing.

Question

Quizplus · Accepted Answer

If maximum interest expense = $24,000 ($400,000 × 6%), and EBIT = $42,500, the company must be operating above the break-even point.

Green Co Has Total Debt of $400,000, a Cost to Borrow