Based on all the relevant operating information provided in the case which plan is more risky, L or H. Explain your answer.

	Table 1									Table 1					Table 2
	Balance Sheets 12/31/2004									Other Financial Data	Router	PNC	Industry		Operating Leverage Inputs						2c						2d
			Router Inc		PNC					Shares Outstanding	50000	2626180	N/A		Input Data, both Plans						interest Rates for Router with Different Capital Structure						Hamada Equation Inputs
	Current Assets		$ 252,351.00		$ 11,125,200.00					Earnings per share	$ 2.79	$ 0.79	N/A		Price			$384
	Net Fixed assets		$ 1,012,969.00		$ 18,097,800.00					Dividends per share	0	0	N/A		Unit Demand, Expected			16,000			Interest Rate Cost Schedule								Plan L	Plan H
	Total assets		$ 1,265,320.00		$ 29,223,000.00					dividnet payout ratio	0	0	20%		Tax Rate			40%			Percent financed with debt (wd)	Percent financed with equity (we)	Interest Rate on debt (kd)				Tax Rate	D/S	1.1	1.3
										NOPAT	$ 139,497.00	$ 2,635.00	N/A		Data for Plan L						0%	100%	7.3%				0%	0.00	1.10	1.30
	Current liabilites		$ -		$ 1,241,100.00					Free Cash Flow	$ 109,497.00	$ 1,507.00	N/A		Variable cost/unit			$329			10%	90%	7.4%				10%	0.11	1.17	1.39
	Long-term debt		$ -		$ 9,239,300.00					ROE	11.02%	12.62%	14.70%		Total fixed op. costs			$400,000			20%	80%	7.6%				20%	0.25	1.27	1.50
	Total liabilities		$ -		$ 10,480,400.00					Stock Price, End of Year	N/A	21	N/A		Non-cash components of FC			$200,000			30%	70%	8.1%				30%	0.43	1.38	1.63
	Prefrred Stock		0		2206400					Book value per share	$ 12,653.00	6.3	N/A		Maximum units of capacity			20,000			40%	60%	8.6%				40%	0.67	1.54	1.82
	Common stock		$ 1,000,000.00		$ 8,510,490.00					P/E	N/A	26.42	30.1		Required Capital (or assets)			$1,500,000			50%	50%	10.0%				50%	1.00	1.76	2.08
	Retianed Earnings		$ 265,320.00		$ 8,026,000.00					Price/Book ratio	N/A	3.34	4.2		Data For Plan H						60%	40%	12.0%				60%	1.50	2.09	2.47
	Total common Equity (50,000 share for Router)		$ 1,265,320.00		$ 16,536,490.00					Beta Coefficient	N/A	1.35	1.35		Vaiable cost/unit			$150
	Total Liabilities and Equity		$ 1,265,320.00		$ 29,223,290.00					Market Risk Premium	5.00%	5.00%	5.00%		Total Fixed op. costs			$2,800,000
										Risk-Free Rate	4.80%	4.80%	4.80%		Non-cash components of FC			$1,400,000
	Income Statement 2004									Dividend growth rate	N/A	N/A	8.30%		Maximum units of capacity			35,000
			Router Inc		PNC					Debt/Assets	0%	35.90%	35.20%		Required Capital (or assets)			$4,000,000
	Sales Revenue		$ 3,556,000.00		$ 82,739,300.00					Preferred stock/Assets	0%	7.60%	3.10%
	Operating costs		$ 3,247,505.00		$ 74,727,413.00					Common equity/Assets	100%	56.60%	61.70%
	Depreciation		$ 76,000.00		$ 3,619,560.00					Tax Rate (Federal + State)	40%	40.00%	40.00%
	Operating Income (EBIT)		$ 232,495.00		$ 4,392,327.00					Interest rate on all debt	N/A	7.50%	7.20%
	Interest		$ -		$ 693,000.00					Preferred dividend yield	N/A	6.00%	N/A
	Taxable Income		$ 232,495.00		$ 3,699,327.00
	Taxes		$ 92,998.00		$ 1,479,731.00
	Preferred dividends		$ -		$ 132,000.00				2b.	Sales Revenue Probability Distribution
	Net Income for common		$ 139,497.00		$ 2,087,596.00								Sales Data applicable to L		Sales Data applicable to H
	Free Cash Flow (FCF)		$ 109,497.00		$ 1,507,000.00					Market Condtions	Probablity of this market condition	Factor multiply it by expected units from above to find units produced	Units Sold: Factor times expected sales, constrained to max level (thousands)	Revenue (Thousands)	Units Sold: Factor times expected sales, constrained to max level (thousands)	Revenue (Thousands)
			$ 30,000.00		$ 580,596.00					Awfu l(Ep. X 0)	0.1	0	0.00	$ -	0.00	$ -
										Poor (Exp. X .5)	0.2	0.5	8,000.00	$ 3,072,000.00	8,000.00	$ 3,072,000.00
										Expected Units	0.4	1	16,000.00	$ 6,144,000.00	16,000.00	$ 6,144,000.00
										Good (exp x 1.5	0.2	1.5	20,000.00	$ 7,680,000.00	24000	$ 9,216,000.00
										Great (exp x 2)	0.1	2	20,000.00	$ 7,680,000.00	320000	$ 12,880,000.00
											Expected Values		14000	$ 5,376,000.00	16000	$ 6,144,000.00
											Standard Deviation (SD)		6261	$ 2,404,220.00	8764	$ 3,365,207.00
											Coefficient of Variation (CV)		0.45	0.45	0.55	0.55
									2e	Inputs used for financial leverage Analysis				Plan L	Plan H
										Values for Router at present Time:
										Existing total assets, (from tab 2)				$ 1,265,320.00	$ 1,265,320.00
										Existing Debt (from Tab 3)				$ -	$ -
										Existing net capital				$ 1,265,320.00	$ 1,265,320.00
										Total capital required for Plan				$ 1,500,000.00	$ 4,000,000.00
										Additional capital needed for Plan				$ 234,680.00	$ 2,734,680.00
										Shares currently outstanding				$ 50,000.00	$ 50,000.00
										Target price per share for IPO (after split)				$ 15.00	$ 15.00
									2f	Important Outputs at D/V = 40%
														Plan L	Plan H
										Router's total value after implementing plan				$ 2,321,205.00	$ 5,444,060.00
										Total operating capital required under plan				$ 1,500,000.00	$ 4,000,000.00
										Initial operating capital, before either plan is implmented				$ 1,265,320.00	$ 1,265,320.00
										New money required to implement plan				$ 234,680.00	$ 2,734,680.00
										Value of PNC's stock				$ 2,086,525.00	$ 2,709,380.00
										Shares outstanding as calcualted above				92848	217762
										Shares currently outstanding				50000	50000
										Stock split ratio (new shares sold shares)				1.857	4.355