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

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

What are the earnings after interest?

If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b.

Why are the percentage changes different?

- 8 years ago

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### calculations

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in …

8 years ago### finance

1. Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in …

7 years ago### accounting

NOT RATED1. Firm A has $10,000 in assets entirely financed

with equity. Firm B also has $10,000 in assets, but these assets are financed

by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in

…9 years ago### Firm A has $10,000 in assets entirely financed with equity

NOT RATED1. Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 …

8 years ago### Firm A and B

NOT RATED1. Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 …

8 years ago### Firm A

NOT RATEDFirm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in …8 years ago### ACCT - Firm A has $10,000 in assets entirely financed with equity

NOT RATEDFirm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in …

8 years ago### finance

NOT RATED1. Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in …

7 years ago### operating income (EBIT)

NOT RATED**Firm A has $10,000 in assets entirely financed with equity. Firm B also**

**has $10,000 in assets, but these assets are financed by $5,000 in debt**

**(with a 10 percent rate of interest) and …**2 years ago### questions

NOT RATED

has $10,000 in assets, but these assets are financed by $5,000 in debt

(with a 10 percent rate of interest) and $5,000 in …6 years ago