Jageman Athletic Apparel has a debt-equity ratio of .4 and earnings before interest and taxes (EBIT) of $265,000. The break-even level of EBIT is $338,000. Based on this information, you know the:
A) Firm should increase its debt-equity ratio.
B) Firm is operating at its optimal level.
C) Firm has minimized its weighted average cost of capital.
D) Firm would be more proﬁtable if it lowered its level of output.
E) Debt of the ﬁrm is a disadvantage.

Question

Quizplus · Accepted Answer

The firm's EBIT is below the break-even level, indicating that the current level of debt is a disadvantage as it is not covering its interest obligations effectively.

Jageman Athletic Apparel Has a Debt-Equity Ratio of