All drop boxes are equity financing and financial leverage.

Search this course Ch 20: End of Chapter Problems - Leverage Problem 20-01 Firm A las 510,100 in assets entirely financed with equity Firm B also has $10,100 in assets, but these assets are financed by $5,050 in debt (with a 15 percent rate of interest) and 55,050 in equity. Both firms sell 10,000 units of output at $3.00 per unit. The variable costs of production are SI, and fixed production costs are $12,000. To ease the calculation, assume no Income tax.) 2. What is the operating income (EMT) for both firms? Round your answers to the nearest dollar FirmA: $ Firm B: b. What are the earnings after interest Round your answers to the nearest dollar Firm AS Firm B:s c.If sales increase by 10 percent to 11,000 units, by what percentage will each firm's earnings after interest increase? To answer the question, derermine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part, Round your answers to one decimal place Firm B: d. Why are the percentage changes different? while Firm Buses Select The answers differ because Firm A uses Select percentage increase in samnings when sales expand - The successful use of Select magnifies the Firm A: $ Firm B: $ b. What are the earnings after interest? Round your answers to the nearest dollar. Firm A: $ Firm B: $ c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm's earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage Increase in these earnings from the answers you derived in part b. Round your answers to one decimal place. Firm A: Firm B d. Why are the percentage changes different? The answers differ because Firm A uses Select percentage increase in earnings when sales expand. while Firm Buses Select the successful use of Select magnifies the -Select equity financing Fancsleverage Grad Now Sam Continue