1. Firm A has Fixed costs of $250,000 and Variable costs are 70% of Sales. Firm B has Fixed costs of $600,000 and Variable Costs are 40% of Sales. At what level of Sales do the two firms have the same EBIT?
a) $666,667
b) $1,166,667
c) $1,600,000
d) $2,000,000
2. Which of the following statements about warrants and convertibles is FALSE?
a. The value of both warrants and convertibles depends on the stock price.
b. One primary difference between warrants and convertibles is that warrants bring in additional funds to the firm when exercised while convertibles reduce debt when exercised.
c. The coupon rate on convertible debt is higher than the coupon rate on similar straight debt because convertibles are riskier.
d. Warrants and Convertibles are used by corporations in order to get a lower rate on their debt.