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Problem:

Max Small has outstanding school loans that require a monthly payment of $1,000. He needs to purchase a new car for work and estimates that this will add $350 per month to his existing monthly obligations. Max will have $3,000 available after meeting all of his monthly living (operating) expenses. This amount could vary by plus or minus 10%.

Requirement:

Question 1: To assess the potential impact of the additional borrowing on his financial leverage, calculate the DFL in tabular form for both the current and proposed loan payments using Max's available $3,000 as a base and a 10% charge.

Question 2: Can Max afford teh additional loan payment?

Question 3: Should Max take on the additional loan payment?

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170946

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