1. Use the following information below to answer the following questions:

Average selling price per unit $12.00

Variable cost per unit $6.00

Units sold 500,000

Fixed costs $520,000

Debt = $8,000,000

Interest cost = 5%

Calculate the degree of operating leverage and financial leverage

2. A corporation has an all equity capital structure of 2,000,000 shares with a current share price of $20. The company wishes to raise $20,000,000 at the current share price of $20 per share or borrow the $20,000,000 at a cost of 5%. What is the EBIT-EPS indifference point of these two plans? The relevant tax rate is 30%

3. Lux Ltd issued 10-year bonds with a coupon rate of 5% and a face value of $1,000. The coupon interest is paid semi-annually. The bonds are expected to mature in 5-years. The bonds are trading currently at a price of $965 each. Determine the appropriate after-tax cost of debt for Lux Ltd. Assume a 30% tax rate.

4.

Premium Ltd is considering a project with the following relevant cash flows:

Initial Outlay = $1,000,000

Incremental Cash Flows from Operations Year 1-5 = $290,000 per year

Terminal Cash Flow at the End of Year 5 = $90,000

Compute the net present value of this project if the firm's cost of capital is 10%