A firm has interest expense of $145,000, preferred dividends of $25,000, and a tax rate of 40 percent.The firm's financial break-even point is _________.
A) $186,667
B) $ 25,000
C) $170,000
D) $145,000

Question

Quizplus · Accepted Answer

The financial break-even point is the level of sales at which the firm's earnings before interest and taxes (EBIT) equal its fixed charges. In this case, the firm's fixed charges are $145,000 + $25,000 = $170,000. Therefore, the firm's financial break-even point is $170,000 / (1 - 0.40) = $186,667.

A Firm Has Interest Expense of $145,000, Preferred Dividends of $25,000