New level of annual interest charges, Finance Basics

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New level of annual interest charges

Question: A firm has sales of 10 mil, variable costs of 5 mil, EBIT of $2 mil, & a degree of combined leverage of 3.0.

[A] If the firm has no preferred stock, determine its year interest charges?

[B] If the firm wishes to lower its degree of combined leverage to 2.5 by reducing interest charges, find the new level of annual interest charges?

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Finance Basics: New level of annual interest charges

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