# Module 6 Assignment GRADED.xlsx - EPS calculations...

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\$ 60,000.00 outstanding bond amount6.00% bond annual interest rate1.00 interest payments per year1,500.00 outstanding shares of preferred stock\$ 5.00 preferred stock dividend per share4,000.00 outstanding shares of common stock40.00% tax ratea.\$ 24,600.00 EBIT-Earnings Before Interest and TaxesEPS calculationsSouthland Industries has \$60,000 of 6% (annual interest) bonds outstanding, 1,500 shares of preferred stock paying an annual dividend of \$5 per share, and 4,000 shares of common stock outstanding. Assuming that the firm has a 40% tax rate, compute earnings per share (EPS) for the following levels of EBIT:\$ 3,600.00 Interest Amount\$ 21,000.00 Net Profits Before Taxes\$ 8,400.00 Taxes\$ 12,600.00 Net Profits After Taxes\$ 7,500.00 Preferred Dividends\$ 5,100.00 Earnings Available to Common Shareholders\$ 1.28 Earnings Per Share Common Stockb.\$ 30,600.00 EBIT\$ 3,600.00 Interest Amount\$ 27,000.00 Net Profits Before Taxes\$ 10,800.00 Taxes\$ 16,200.00 Net Profits After Taxes\$ 7,500.00 Preferred Dividends\$ 8,700.00 Earnings Available to Common Shareholders\$ 2.18 Earnings Per Share Common Stockc.\$ 35,000.00 EBIT\$ 3,600.00 Interest Amount\$ 31,400.00 Net Profits Before Taxes\$ 12,560.00 Taxes\$ 18,840.00 Net Profits After Taxes\$ 7,500.00 Preferred Dividends\$ 11,340.00 Earnings Available to Common Shareholders\$ 2.84 Earnings Per Share Common Stock
10/10 points
a./b. Compute the degree of operating, financial, and total leverage for firm R/firm W
c. Compare the relative risks of the two firms.
d. Discuss the principles of leverage that your answers illustrate.Integrative: Leverage and riskFirm R has sales of 100,000 units at \$2.00 per unit, variable operating costs of \$1.70 per unit, and fixed operating costs of \$6,000. Interest is \$10,000 per year. Firm W has sales of 100,000 units at \$2.50 per unit, variable operating costs of \$1.00 per unit, and fixed operating costs of \$62,500. Interest is \$17,500 per year. Assume that both firms are in the 40% tax bracket.