6. Boeing is considering purchasing a small firm in the same line of business. The purchase would be financed by the sale of common stock or a bond issue. The financial manager needs to evaluate how the two alternative financing plans will affect the earnings potential of the firm. Total financing required is P4.5 million. The firm currently has P20,000,000 of 12 percent

bonds and 600,000 common shares outstanding. The firm can arrange financing of the P4.5 million through a 14 percent bond issue or the sale of 100,000 shares of common stock. The firm has a 40 percent tax rate.

a. What is the degree of financial leverage for each plan at P7,000,000 of EBIT?

b. What is the financial breakeven point for each plan?

7. Maximum growth rate

. Eirre Company has the following ratios: A*/S = 1.6; L*/S = 0.4; profit margin = 0.10; and dividend payout ratio = 0.45, or 45 percent. Sales last year were P100 million. Assuming that these ratios will remain constant and that all liabilities increase spontaneously with increases in sales, what is the maximum growth rate Eirre Company can achieve without having to employ nonspontaneous external funds?

A. 3.9 percent

B. 4.8 percent

C. 7.8 percent

D. 9.6 percent

8. The Crissa Jeans Company produces two different types of jeans. One is called the "Simple Life" and the other is called the "Fancy Life" The company's Production Budget requires 353,500 units of Simple jeans and 196,000 Fancy jeans to be manufactured. It is estimated that 2.5 direct labor hours will be needed to manufacture one pair of Simple Life jeans and 3.75 hours of direct labor hours for each pair of Fancy life jeans.

a. What is the total number of direct labor hours needed for both lines of jeans?

b. What is the total number of direct labor hours needed for both lines of jeans?

9.

Cash P 10 Accounts payable P 15

Accounts receivable 25 Notes payable 20

Inventories 40 Accrued wages and taxes 15

Net fixed assets 75 Long-term debt 30

Common equity 70

Total liabilities

Total assets P 150 and equity P150

Sales during the past year were P100, and they are expected to rise by 50

percent to P150 during next year. Also, during last year fixed assets were

being utilized to only 85 percent of capacity, so CocaSp-Cola could have

supported P100 of sales with fixed assets that were only 85 percent of last

year's actual fixed assets. Assume that Coca-cola's profit margin will remain

constant at 5 percent and that the company will continue to pay out 60

percent of its earnings as dividends. To the nearest whole Peso, what

amount of nonspontaneous, additional funds (AFN) will be needed during the

next year? ____________