q1__XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stock dividends of $24,000. The Company is in the 40% tax bracket.

1. Compute XYZ companys Degree of Total Leverage (DTL) and explain its meaning.

2. If XYZ companys Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in sales revenue.

q2__ Hook Industries capital structure consists solely of debt and common equity. It can issue debt at 10% interest rate, and its common stock currently pays a $2 dividend per share. The stocks price is currently $20; its dividend is expected to grow at a constant rate of 5 percent per year; its tax rate is 35 percent; and its WACC is 12 percent.

1. Calculate the cost of debt and the cost of common stock.

2. What percentage of the companys capital structure consists of debt?