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Save file in this convention ONLY:last name_first name_(2016SP1-BME-21Please put one problem on each tab anDo not deviate or change this.Use formula's where possible in calculatiUse graphing functionMake any narrative/explaination neat anIf you are unfamilar with Excel you will n
13514-06) Corporate Finance Module #nd label the tab with the problem #tionnd completeneed to learn it. Youtube has very good tutorials
s.
EEPS =[(EBIT - Interest) x (1-T) - PDNEBIT =Earinings before interest and taxesInterest =amount paid to debt holdersT =tax ratePD =preference dividend paid to preference stock holdersN =number of common shares outstandingAEPS =$0.38BEPS =$1.28CEPS =$1.94
EPS CalculationsABC$24,600.00$30,600.00$35,000.00$9,600.00($60,000 x 0.160.40$7,500.00(1,500 x $5)$4,000.00
Firm RSales=100000Unit per sale=$2.00Variable Operating Cost=$1.70Fixed Operating Cost=$6,000.00Interest=$10,000.00Firm WSales=100000Unit per sale=$2.50Variable Operating Cost=$1.00Fixed Operating Cost=$62,500.00Interest=$17,500.00Taxes=40%DOL =Q x (P - VC)Q x (P - VC) - FCa) Compute the degree of operating, financial, and total leverage for firm R.
EBIT =$24,000.00Now we have all the elements to finish the degree of financial leverage with the prDFL =1.71DTL =DOL x DFLDTL = 2.14b) Compute the degree of operating, financial, and total leverage for firm W.
c) Compare the relative risks of the two firms.
Firm R1.251.71Firm W1.711.25Firm R has a higher operating risk than Firm W.But firm W has a higher financial rd) Discuss the principles of leverage that your answers illustrate.
024681012C
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Integrative: Leverage and riskasured by following formula:llowing formula:
reference dividend set at $0.easured by following formula:llowing formula:reference dividend set at $0.DTL
2.142.14risk than firm R.But both firms have identical total risk.

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Term
Spring
Professor
CAROLYNJARMON
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