Kizspy | Question: 28 (Choose 1 answer)
Suppose that Banana Computers has $1,000 in revenue this year, along with COGS of $400 and SG&A of $100. The required rate of return on its equity is 14 percent, and the risk-free rate is 5 percent. Assume that the COGS only include the marginal costs of selling a computer. Banana is considering adding $700 worth of debt with a coupon rate of 5 percent and an YTM of 7.9 percent to its capital structure. Suppose, revenues fall by $300, due to a decrease in the selling price, what is the percent change in net income with and without the debt? Assume that the total variable production costs remain the same. (Round the answer to one decimal place.)
A. 64.5% and 60%
B. 60.0% and 64.5%
C. 59.2% and 40.8%
D. 40.8% and 59.2%
