Fiifi Ltd has been operating as a private company limited by shares since its incorporation 20 years ago. Last week, its shareholders passed two important resolutions: one converted the company into a public company, and another authorized the offer of 30% of its existing shares to the public. You have been engaged to help with the valuation of the firms equity stock. Below are the recent financial statements of the firm.

(a) Compute the degree of operating leverage and degree of financial leverage for Fiifi. Interpret the results.

Income statement for the year ending Dec 31, 2013 GHS Sales revenue 8,561,500 Cost of sales (4,350,400) Gross profit 4,211,100 Selling and admin expenses (251,600) Administrative expenses (1,000,000) Earnings before interest and tax 2,959,500 Interest expense (225,000) Profit before tax 2,734,500 Tax (25%) (683,625) Profit after tax 2,050,875 Statement of financial position at Dec 31, 2013 GHS Assets: Current assets 1,950,000 Property, plants and equipment 4,980,200 Total assets 6,930,200 Liabilities: Current liabilities 980,700 15% irredeemable bonds 1,500,000 Total liabilities 2,480,700 Equity: Stated capital (2 million shares) 2,000,000 Retained earnings 2,449,500 Shareholders' equity 4,449,500 Total liabilities and equity 6,930,200 Total dividends for the year 980,000 Consider the following additional information