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
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