Show how they compute they are from Cost of Capital, Financial Leverage, Capital Structure problems

Problem 1.

PICPA presently sells 400,000 bottles of perfume each year. Each bottle costs P0.85 to produce and sells for PI .00. Fixed costs are P28,000 per year. The firm has annual interest expense of P6,000, preference share dividends of P2,000 per year, and a 30 percent tax rate. What is the expected change in the EPS if sales will increase by 10%?

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Problem 2.

What is the required rate of return for a firm with a beta of 1.35 when market return premium is 14% and the risk free rate is 5%