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

Question

Quizplus · Accepted Answer

Financial breakeven point refers to the point where the company is able to cover all of its expenses (interest and preferred dividends) and taxes, but does not generate any profits.

To calculate financial breakeven point, we can use the following formula:

Financial Breakeven Point = (Interest Expense + Preferred Dividends) / (1 - Tax Rate)

Plugging in the given values, we get:

Financial Breakeven Point = ($145,000 + $25,000) / (1 - 0.4) = $186,667

Therefore, the financial breakeven point is $186,667.

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