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Outflung Computers has $1000 in revenue this year, along with COGS of $400 and SG&A...

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Accounting

Outflung Computers has $1000 in revenue this year, along with COGS of $400 and SG&A of $100. The required rate of return on its equity is 14%, and the risk-free rate is 5%. Assume that the COGS only includes the marginal costs of selling a computer. Banana is considering adding $700 worth of debt with a coupon rate of 5% and a YTM of 7.9% to its capital structure.

M&M Proposition 2: What per cent of the company's costs are fixed, and what per cent are variable with the debt and without the change in leverage?

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