Individual Financing Problem Ch 20

Chapter 20, Problem 1 Firm A has $10,000 in assets all told 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 argon $1, and fixed production courts argon $12,000. (To ease the calculation, assume no income tax.) a. What is the operating income (EBIT) for both signs? revenue 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 are the earnings afterward interest? Firm AFirm B EBIT $3,000.00 $3,000.00 dun 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 maturation? To growth the question, determine the earnings after taxe s 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, pronounce it on our website: OrderCustomPaper.com

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