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If a firm has a $1,500,000 debt limit before AT kd will change and if taxes are 40% and total equity in the capital structure is 40% and the rest is debt, calculate the debt breakpoint in the MCC schedule.

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abiolataiwo2015

Answer:

$2,500,000

Explanation:

Break Point = Level of debt / Weight of debt

(100%-40%)

=60%

Hence:

= 1,500,000 / 60%

= $2,500,000

Therefore the debt breakpoint in the MCC schedule will be $2,500,000

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