A firm recently reported $12,500 of sales, $7.250 of operating costs other than

Question

A firm recently reported $12,500 of sales, $7.250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was its operating income, or EBIT? Select one: O A. $3,462 B. $3.644 O C. $3,836 D. $4,038 O E. S4250 You're considering an investment in 12-year, $1,000 face value bonds with a 850% coupon paid annually and a yield to maturity of earn? 7.750%. The bonds are callable in three years at a call price of S 1,080. If you believe that the bonds will be called how much will you

Explanation / Answer

EBIT(operating income)=

sales- operating cost excluding depreciation- depreciation

$12,500 - $7,250 - $1,000

$4,250

Therefore answer is option (E) $4250

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