# TONEY_SHARON_2020SP1-FSMA-3010-02 Module 6.xlsx - P13–11...

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a. \$24,600b. \$30,600c. \$35,000Interest rate6%Bond value\$60,000Interest paid\$3,600Preferred dividend per share\$5No. of preferred shares1500Total preferred dividend paid\$7,500Tax rate40%No of outtanding equity shares4000aEBIT\$24,600Net income before tax\$13,500Net income after tax\$8,100EPS\$2.025bEBIT\$30,600Net income before tax\$19,500Net income after tax\$11,700EPS\$2.925cEBIT\$35,000P13–11EPScalculationsSouthlandIndustries has \$60,000 of6% (annual interest) bondsoutstanding, 1,500 sharesof preferred stock paying anannual dividend of \$5 pershare, and 4,000 shares ofcommon stock outstanding.Assuming that the firm hasa 40% tax rate, computeearnings per share (EPS)for the following levels ofEBIT:
Net income before tax\$23,900Net income after tax\$14,340EPS\$3.585
c. Compare the relative risks of the two firms.P13–16Integrative: Leverage andriskFirm R has sales of 100,000 units at \$2.00per unit, variable operating costs of \$1.70 perunit, and fixed operating costs of \$6,000.Interest is \$10,000 per year. Firm W has salesof 100,000 units at \$2.50 per unit, variableoperating costs of \$1.00 per unit, and fixedoperating costs of \$62,500. Interest is \$17,500per year. Assume that both firms are in the 40%tax bracket.a. Compute the degree of operating, financial,and total leverage for firm R.b. Compute the degree of operating, financial,and total leverage for firm W.

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Term
Fall
Professor
Michael Fortunato
Tags