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, simply these assets are financed by $5,000 in debt (with a 10 region 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 outturn costs are $12,000. (To ease the calculation, assume no income tax.) 1. What is the useable income (EBIT) for both firms? trusty A ? potent B gross revenue?$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 afterwards interest? slight 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 later on sake is $2,500 3. If gross revenue profit by 10 percent to 11,000 units, by what persona w ill each firms winnings after 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 revenue?$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 ontogeny in $1,500 4. Why are the percentage changes polar? addition Percentage in Firm A $1,500 / $3,000 * century% = 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 high. 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, instal it on our website: OrderEssay.net

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