Finance

Financing Strategy Problems Problem 1. home A has $10,000 in assets entirely financed with equity. profligate B also has $10,000 in assets, b arly these assets are financed by $5,000 in debt (with a 10 component rate of interest) and $5,000 in equity. Both sloppeds sell 10,000 units of output at $2.50 per unit. The variable costs of take are $1, and fixed product costs are $12,000. (To ease the calculation, assume no income tax.) 1. What is the operating(a) income (EBIT) for both firms? watertight A ? besotted B sales?$25,000?$25,000 (10,000 x 2.50) Variable be?$10,000?$10,000? (10,000 x 1) Fixed Costs?$12,000?$12,000 operate Income (EBIT)?$3,000?$3,000 2. What are the simoleons income by and by interest? little matter to Debt = $5,000 x .10 = $500 Firm A?Firm B enkindle?$ 0 ?$500 Profit in front Tax?$3,000?$2,500 The Earnings aft(prenominal) beguile is $2,500 3. If sales summation by 10 percent to 11,000 units, by what service of process will each firms winnings after(prenominal) interest increase? To answer the question, determine the allowance after taxes and compute the percentage increase in these earnings from the answers you derived in part b. Firm A ?Firm B gross sales?$27,500?$27,500 ($10,000 x 1.1 x $2.50) = $27,500 Variable Costs?$11,000?$11,000 ($10,000 x 1.

1 x $1) = $11,000 Fixed Costs?$12,000?$12,000 Operating Income (EBIT)?$4,500?$4,500 New Earning After Interest Firm A?Firm B Interest?$ 0 ?$500 Profit Before Tax?$4,500?$4,000 join on in $1,500 4. Why are the percentage changes polar? emerg ence Percentage in Firm A $1,500 / $3,0! 00 * ascorbic acid% = 50% Increase Percentage in Firm B $1,500 / $2,500 * 100% = 60% Changes in percentages are different because there was an increase in profits in the firm B since taxes are higher(prenominal). This is because firm B uses their debts for funding. This causes the interest charges to take their profits. It is noted that Firm B has lowered its income from interest, affecting net income that is a higher percentage for...If you want to get a full essay, put in it on our website: BestEssayCheap.com

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