Sales are booming so they want to expand by buying a competitor who is looking to retire called Z Corp. They will do this by using debt a combination of bank debt and a private debt offering at an average rate of 8%. The EBIT for the new firm is 200k and the interest cost to purchase is 100k.

A. What is the DFL of Z Corp?

B. How can the DFL attributed to W Corp. be lowered if they buy Z Corp?

C. What will most likely happen W Corp if sales of Z Corp drop by half, in regards to DFL and chapter 11 risk