Illustrate what percentage will each industry earnings

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Reference no: EM1388866

Q. Industry A has $10,000 in assets entirely financed with equity. Industry B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) also $5,000 in equity. Both industries sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1 also fixed production costs are $12,000. (To ease the calculation, assume no income tax.)

a. Illustrate what is the operating income (EBIT) for both industries?

b. Illustrate what are the earnings after interest?

c. If sales increase by 10 percent to 11,000 units, by illustrate what percentage will each industry's earnings after interest increase? To answer the question, determine the earnings after taxes also calculate the percentage increase in these earnings from the answers you derived in part b.

d. Explain why are the percentage changes different?

Reference no: EM1388866

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