Carolina Fastener, Inc., makes a patented marine bulkhead latch that wholesales for P6.00. Each latch has variable operating costs of P3.50. Fixed operating costs are P60,000 per year. The firm pays P13,000 interest and preferred dividends of P7,000 per year. At this point, the firm is selling 30,000 latches per year and is taxed at a rate of 40%.

Compute for the DOL, DF, and DTL.

If the sales increased by 25%, by how much is the increase or decrease in the EPS?

If the sales decreased by 20%, by how much is the increase or decrease in the operating profit?

Company Z has a bond issue outstanding that matures in fourteen years. The bonds pay interest semiannually. Currently, the bonds are quoted at 98 percent of face value and carry an 8 percent coupon. The firm's tax rate is 35 percent. What is the firm's after-tax cost of debt?