Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy hours mastering every type of cookie imaginable and later creating new….
Should Max take on the additional loan payment?
Max Small has outstanding school loans that require a monthly payment of $1,000. He needs to buy a new car for work and estimates that this purchase will add $350 per month to his existing monthly obligations. Max will have $3,000 available after meeting all his monthly living (operating) expenses. This amount could vary by plus or minus 10%.
a. 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% change.
b. Can Max afford the additional loan payment?
c. Should Max take on the additional loan payment?