Finance

Financing Strategy hassles Problem 1. home A has $10,000 in assets entirely financed with equity. profligate B also has $10,000 in assets, simply these assets atomic number 18 financed by $5,000 in debt (with a 10 component rate of absorb group) and $5,000 in equity. two sloppeds sell 10,000 units of output at $2.50 per unit. The variable costs of support be $1, and fixed exertion costs be $12,000. (To rilievo the calculation, assume no income tax.) 1. What is the practicable income (EBIT) for both firms? unassailable A ? true B sales?$25,000?$25,000 (10,000 x 2.50) Variable cost?$10,000?$10,000? (10,000 x 1) Fixed Costs?$12,000?$12,000 scarper Income (EBIT)?$3,000?$3,000 2. What are the simoleons income subsequently interest? Less result to Debt = $5,000 x .10 = $500 slopped A? steadfastly B enkindle?$ 0 ?$500 utility in breast Tax?$3,000?$2,500 The Earnings by and by Interest is $2,500 3. If sales make up by 10 share to 11,000 units, by what portion for touch on each firms winnings after interest step-up? To answer the question, happen the allowance after taxes and work out the percentage increase in these earnings from the answers you derived in dissociate b. Firm A ?Firm B Sales?$27,500?$27,500 ($10,000 x 1.1 x $2.50) = $27,500 Variable Costs?$11,000?$11,000 ($10,000 x 1.

1 x $1) = $11,000 Fixed Costs?$12,000?$12,000 Operating Income (EBIT)?$4,500?$4,500 New Earning afterward Interest Firm A?Firm B Interest?$ 0 ?$500 Profit Before Tax?$4,500?$4,000 make up in $1,500 4. Why are the percentage changes polar? attach Percentage in Firm A $1,500 / $3,000 * c% = 50% Increase Percentage in Firm B $1,500 / $2,500 * 100% = 60% Changes in percentages are different because there was an increase in profits in the firm B since taxes are high. This is because firm B uses their debts for funding. This causes the interest charges to take their profits. It is noted that Firm B has lowered its income from interest, affecting net income that is a higher percentage for...If you want to get a full essay, lay out it on our website: Ordercustompaper.com

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