M6 Assignment - EBIT Less Interest a b c $24,600.00...

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a b c EBIT $24,600.00 $30,600.00 $35,000.00 Less: Interest $9,600.00 $9,600.00 $9,600.00 $15,000.00 $21,000.00 $25,400.00 Less: Taxes $6,000.00 $8,400.00 $10,160.00 Net profits after taxes $9,000.00 $12,600.00 $15,240.00 $7,500.00 $7,500.00 $7,500.00 $1,500.00 $5,100.00 $7,740.00 EPS (4,000 shares) $0.375 $1.275 $1.935 Net profits before taxes Less: Preferred dividends Earnings available to common share holders
A (100,000*(2.00-1.70)) 30000 1.25 (100,000*(2.00-1.70))-6000 24000 24000 1.71 24,000-10000 1.71*1.25 2.14 B. (100,000*(2.50-1.00)) 150000 1.71 (100,000*(2.00-1.70))-62,500 87500 87500 1.25 87,500-17500 1.71*1.25 2.14 c. Firm R has less operating (business) risk but more financial risk than Firm W. DOL R DFL R DTL R DOL W DFL W DOL W d. Two firms with differing operating and financial structures may be equally leveraged. Since total leverage is the product of operating and financial leverage, each firm may structure itself differently and still have the same amount of total risk.
Probability $0.20 $0.60 $0.20 Sales $200,000.00 $300,000.00 $400,000.00 Less variable costs $140,000.00 $210,000.00 $280,000.00 Less: Fixed Costs $75,000.00 $75,000.00 $75,000.00 EBIT -$15,000.00 $15,000.00 $45,000.00 Less Interest $12,000.00 $12,000.00 $12,000.00 Earnings before taxes -$27,000.00 $3,000.00 $33,000.00 Less: Taxes -$10,800.00 $1,200.00 $13,200.00 Earnings after taxes -$16,200.00 $1,800.00 $19,800.00 b Earnings after taxes -$16,200.00 $1,800.00 $19,800.00 $10,000.00 $10,000.00 $10,000.00 EPS -$1.62 $0.18 $1.98 Expected EPS $0.18 Standard Deviaton EPS √(3.24*.20)+(0)+(3.24*.20) √1.296 $1.14 Coefficient Variation standard deviation EPS $1.14 6.32 Expected EPS $0.18 c

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