User Account

All Pages

Interest for each firm with the increased sales

Assignment Help Corporate Finance
Reference no: EM13210917

Firm A has $20,000 in assets entirely financed with equity.

Firm B also has $20,000 in assets, financed by $10,000 in debt (with a 10 percent rate of interest) and $10,000 in equity.

Both firms sell 30,000 units at a sale price of $4.00 per unit.

The variable costs of production are $3 per unit.

Fixed production costs are $25,000.

(assume no income tax.)

a. What is the operating income (EBIT) for both firms?

b. What are the earnings after interest for each firm?

c. What is each firm's Return on Equity? (calculate ROE based on earnings after interest ... assume no income tax)

Assume sales increase by 10% (to 33,000 units)

d. What are the earnings after interest for each firm with the increased sales?

e.  With the increased sales, what is the percentage increase in earnings after interest for each firm?

f. Why are the percentage changes to earnings after interest different?

g. What is each firm's Return on Equity with the increased sales?

h. Why might investors prefer to invest in the firm that provides lower total earnings?

Reference no: EM13210917

Questions Cloud

Identify the forces that work against success of cladding : Identify the forces that work against the success of cladding systems in keeping the elements out.
Reasons dietary modifications-different life stages : What are some of the reasons dietary modifications may be needed in different life stages? Provide three examples to support your answer.
Calculate the moment of inertia for the milkyway : calculate the moment of inertia for the Milkyway. Assume it to be a disk.
State structure have peptide bonds that are flat and planar : Draw the structure for aspartic acid-serine-histidine at pH 7. Why is this structure have peptide bonds that are flat and planar?
Interest for each firm with the increased sales : What is the operating income (EBIT) for both firms and what are the earnings after interest for each firm - interest for each firm with the increased sales
What percent removal of organic matter : If the BOD5 of the river below the mill outfall must not exceed 5 mg/L, what percent removal of organic matter (BOD5) is required by the mill to meet this requirement?
Determine the flowrate as a function of the diameter : Water flows through the pipe contraction shown. for the given 0.2 m difference in the meter level, determine the flowrate as a function of the diameter of the small pipe, D.
What is the total volume of the vocs emitted each day : Assume that there were 1,100,000 vehicles making a 28.5-mi round trip per day, the average vehicle emission rate for VOCs is 1.3 g/VM , and the molecular weight of the VOC emissions from the mobile sources can still be represented by that of metha..
Identify the groups that did not share in general prosperity : Identify the groups that did not share in the general prosperity of Americans during the 1950s. Explain why each of these groups missed out on the “good times.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Impact of the global economic crisis on business environment

This paper reviews the article of ‘the impact of the global economic crisis on the business environment' that is written by Roman & Sargu (2011).

  Explain the short and the long-run effects on real output

Explain the short and the long-run effects on real output, price, and unemployment

  Examine the requirements for measuring assets

Examine the needs for measuring assets at fair value in accounting standards

  Financial analysis report driven by rigorous ratio analysis

Financial analysis report driven by rigorous ratio analysis

  Calculate the value of the merged company

Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

  Stock market project

Select five companies for the purpose of tracking the stock market, preparing research on the companies, and preparing company reports.

  Write paper on financial analysis and business analysis

Write paper on financial analysis and business analysis

  Intermediate finance

Presence of the taxes increase or decrease the value of the firm

  Average price-earnings ratio

What is the value per share of the company's stock

  Determine the financial consequences

Show by calculation the net present value for the three alternatives (no education, network design certification, mba). Also, according to NPV suggest which alternative you advise your friend to choose

  Prepare a spread sheet model

Prepare a spread sheet model for the client that determines NPV/IRR with and without tax.

  Principles and tools for financial decision-making

Principles and tools for financial decision-making. Analyse the concept of corporate capital structure and compute cost of capital.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd