AFN Analysis needed for the following scenario:

Breville Co, Inc.					AFN Calculation
Balance Sheet					A*
Assets:		Liabilities:			L*
Current Assets	$       995,000	Accounts Payable	$       300,000		S0
Fixed Assets	$   3,000,000	Notes Payable	$       700,000		S1
		Other Current Liabilities	$       195,000		ΔS
		Bonds Payable	$   1,200,000		M
		Total Liabilities:	$   2,395,000		RR
		Equity	$   1,600,000		AFN
Total Assets:	$   3,995,000	Total Liabilities & Equity:	$   3,995,000

 

Funds distributed in $50,000 increments (added to long-term debt)

IF AFN > $200,000, then the pre-tax cost of debt is 15%

Otherwise, the pre-tax cost of debt is 18%

 

Any detailed explanation would be appreciated.