Details of this Paper

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets,

Description

solution


Question

Question;Firm A has $10,000 in assets entirely financed with equity. Firm B alsohas $10,000 in assets, but these assets are financed by $5,000 in debt(with a 10 percent rate of interest) and $5,000 in equity. Both firms sell10,000 units of output at $2.50 per unit. The variable costs of productionare $1, and fixed production costs are $12,000. (To ease the calculation,assume no income tax)a. What is the operating income (EBIT) for both firms?b. What are the earnings after interest?c.;If sales increase by 10 percent to 11,000 units, by what percentage;will each firm?s earnings after interest increase?;To;answer the question;determine the earnings after taxes and compute the percentage;increase in these earnings from the answers you derived in part b.d. Why are the percentage changes different?

 

Paper#44482 | Written in 18-Jul-2015

Price : $22
SiteLock