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Financial Planning Problems




Question;Firm A has $10,000 in assets entirely financed with equity.;Firm B also has $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 sell;10,000 units of output at $2.50 per unit. The variable costs of production are;$1, and fixed production costs are $12,000. (To ease the calculation, assume no;income tax.);What is the operating income (EBIT) for both firms?;What are the earnings after interest?;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.;Why are the percentage changes different?


Paper#50261 | Written in 18-Jul-2015

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