The Jonhaux Company produces a product that has a contribution per unit of $40. Fixed operating costs are $140,000. The Jonhaux Company currently has $10 million of bonds outstanding with a coupon rate of 5%.
a. What is the current break-even number of units for Jonhaux con- sidering all fixed costs?
b. The board of Jonhaux is considering a proposal to issue $1 mil- lion additional bonds, with a a coupon rate of 6%. How would this proposed financing affect the break-even point?
c. If 20,000 units are produced and sold, what is the degree of operat- ing leverage, the degree of financial leverage, and the degree of total leverage under the current and proposed financial structures?
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