Individual Financing Problem Ch 20

Chapter 20, Problem 1 Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assetsbut these assets argon financed by $5,000 in debt (with a 10 percent rate of absorb)and $5,000 in equity. Both theatres sell 10,000 units of output at $2.50 per unit. The variable be of production ar $1, and fixed production speak tos ar $12,000. (To ease the calculation, assume no income tax.) a. What is the operating income (EBIT) for both unattackables? consummate(a) sales Revenue: 10,000 x $2.50= $25,000.00 variable quantity cost: 10,000 x $1= $10,000.00 Fixed Cost: $12,000.00 EBIT: $3,000.00 For BOTH FIRMS b. What argon the earnings afterward interest? Firm AFirm B EBIT $3,000.00 $3,000.00 fetch 0 500 $3,000.00 $2,500.00 c. If sales development by 10 percent to 11,000 units, by what percentage will each firms earnings after interest enlarge? To unblock the question, determine the earni ngs after taxes and compute the percentage increase in these earnings from the answers you derived in part b. Firm AFirm B Sales Revenue: 11,000 x $2.50= $27,500.00 $27,500.00 Variable Cost: 11,000 x $1= $11,000.00 $11,000.00 Fixed Cost: $12,000.00 $12,000.

00 EBIT $4,500.00 $4,500.00 arouse: 0500 $4,500.00 $4,000.00 ! 50%60%Increases d. Why are the percentage changes different? The percentage changes are different because of the interest Firm B is paying on their debt interest. The debt interest is $500, disregarding of the sales. As sales increase, it becomes a littler percentage of what is deducted from the sales. When 10,000 units were sold,...If you urgency to get a full essay, array it on our website: BestEssayCheap.com

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