1) How agency costs and free cash flow relate to capital structure management?

3) Describe the four (4) sources of business risk.

4) What are the three (3) determinants of the volatility of a firm's earnings?

5) Welker Products sells small kitchen gadgets for $15 each. The gadgets have a variable cost of $4 per unit, and Welker Products' fixed operating costs are $220,000 per year. Welker Products' capital structure includes 55% debt and 45% equity. Annual interest expense is $25,000, and the corporate tax rate is 35%.

a.Calculate the break-even point in units.

b.If Welker Products sells 25,000 units, calculate the firm's EBIT and net income.

c.If sales increase ten percent from 25,000 units to 30,000 units, estimate the firm's expected EBIT and net income.

d.Does Welker Products use operating leverage and/or financial leverage? Explain.