David has to buy four new tires for his SUV. The tires that he is considering cost $25 a piece more than his regular brand. These higher-priced tires are supposed to improve his mileage per gallon by 20%. Suppose that the tires last for 48,000 miles and that David drives an average of 1,000 miles per month and that gas will cost $2.50 per gallon for the next 4 years. If David's SUV currently gets 30 miles to the gallon now (on the old tires), should David purchase the more expensive tires? and Assume that a firm has earnings before interest and taxes (EBIT) of $375,000 and that it has interest expense of $75,000, must pay preferred dividends of $6,000 and has a tax rate of 40 percent. Given a base EBIT level of $375,000, what is the firm's degree of financial leverage?
David has to buy four new tires for his SUV. The tires that he is considering cost $25 a piece more than his regular brand. These higher-priced tires are supposed to improve his mileage per gallon by 20%. Suppose that the tires last for 48,000 miles and that David drives an average of 1,000 miles per month and that gas will cost $2.50 per gallon for the next 4 years. If David's SUV currently gets 30 miles to the gallon now (on the old tires), should David purchase the more expensive tires?
and
Assume that a firm has earnings before interest and taxes (EBIT) of $375,000 and that it has interest expense of $75,000, must pay preferred dividends of $6,000 and has a tax rate of 40 percent. Given a base EBIT level of $375,000, what is the firm's degree of financial leverage?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
