Merville Corporation will begin operations next year to produce a single product at a price of $$12$ per unit. Mervile has a choice of two methods of production: Method A: with variable costs of $$6\mathrm{.}75$ per unit and fixed operating costs $$675,000$; Method B with variable costs of $$8\mathrm{.}25$ per unit and fixed operating costs of $$401,250.$ To support the operations under either production method, the firm requires $$2,250,000$ in assets, and its debt ratio is $40\%.$ Cost of debt is $10\%.$

The sales forecast for the coming year is $200,000$ units. Under which method would EBIT be more adversely affected if sales did not reach the expected levels?

Given the firm's present debt, which method would produce the greater percentage increase in EPS for a given increase in EBIT?

Calculate the total leverage and comment on firm's total risk.