A company has an EBIT of $4 million, and its degree of total leverage is...
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A company has an EBIT of $4 million, and its degree of total leverage is 2.8. The firm's debt consists of $23 million in bonds with a YTM of 10.20%. The company is considering a new production process that will require an increase in fixed costs but a decrease in variable costs. If adopted, the new process will result in a degree of operating leverage of 1.6. The president wants to keep the degree of total leverage at 2.8. If EBIT remains at $4 million, what dollar amount of bonds must be outstanding to accomplish this (assuming the yield to maturity remains at 10.20% and is equal to the coupon rate)? Do not round intermediate calculations.
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