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c. The following price and cost data are given for Fim A and B: Firm A Firm B Selling price per unit S2 $ 2.5
c. The following price and cost data are given for Fim A and B: Firm A Firm B Selling price per unit S2 $ 2.5 Variable cost per unit $1.70 $ 1.00 Fixed operating costs $ 6,000 $ 62,500 Interest $ 10.000 per year $ 17,500 per year Note: Assume that both firms are making equal sales and have a 40% tax rate. i. Calculate operating, financial and total leverage for both firms. ii. Compare the relative risks of the two finns fii. Discuss the principles of leverage illustrated in your answers. d. Differentiate between i. Systematic and Unsystematic risk ii. Pecking order and Trade-off theory
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