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Southwest U's campus book store sells course packs for $15 each. The variable cost per pack is $11, and at current annual sales of 51,000

Southwest U's campus book store sells course packs for $15 each. The variable cost per pack is $11, and at current annual sales of 51,000 packs, the store earns $75,000 before taxes on course packs. How much are the fixed costs of producing the course packs?

a. $279,000
b. $129,000
c. $690,000
d. $486,000
e. $204,000

Your girlfriend plans to start a new company to make a new type of cat litter. Her father will finance the operation, but she will have to pay him back. You are helping her, and the issue now is how to finance the company, with equity only or with a mix of debt and equity. The price per unit will be $10.00 regardless of how the firm is financed. The expected fixed and variable operating costs, along with other information, are shown below. How much higher or lower will the firm's expected EPS be if it uses some debt rather than only equity, i.e., what is EPSL - EPSU? Do not round your intermediate calculations.

0% Debt, U 60% Debt, L
Expected unit sales 245,000 245,000
Price per unit $10.00 $10.00
Fixed costs $1,000,000 $1,000,000
Variable cost/unit $2.00 $2.00
Required investment $3,000,000 $3,000,000
Shares issued at $10/share 300,000 120,000
% Debt 0.00% 60.00%
Debt, $ $0 $1,800,000
Equity, $ $3,000,000 $1,200,000
Interest rate NA 10.00%
Tax rate 25.00% 25.00%
a. $2.10
b. $3.30
c. $1.73
d. $4.80
e. $2.48

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