1. The Richardson Oil Company is considering issuing additional debt. They wish to use the yield on their existing debt as a guide to the cost of new debt. They currently have a zero-coupon bond outstanding that has five years to maturity and a current market price of 74, or $747.50 per $1,000 par value. Use the Approximate Approach

a. If Richardsons marginal tax rate is 20%, what is the cost of debt?

b. If Richardsons marginal tax rate is 30%, what is the cost of debt?

X Co. currently sells 400,000 bottles of perfume each year. Each bottle costs P.84 to produce & sells for P1.00. Fixed costs are P28,000 per year. The firm has annual interest expense of P6,000, preferred stock dividends of P2,000 per year before tax.

a. The degree of operating leverage for X Co. is

2. The degree of financial leverage for X Co. is