B compute the degree of operating financial and total

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b. Compute the degree of operating, financial, and total leverage for firm W.
c. Compare the relative risk of the two firms.
d. Discuss the principals of leverage that your answers illustrate.
Problem 13-20, p. 599 Debt and financial risk: John Tower is the sole owner of Tower Interiors, and he has made the forecast of sales shown in the following table. Sales Probability $200,00 0 0.20 300,000 0.60 400,000 0.20 The firm has fixed operating costs of $75,000 and variable operating costs equal to 70% of the sales level. The company pays $12,000 in interest per period. The tax rate is 40%. a. Compute the EBIT for each level of sales. b. Compute the EPS for each level of sales, the expected EPS, and the standard deviation of the EPS, and the coefficient of variation of EPS, assuming that there are 10,000 shares of common stock outstanding.
d. Compare your findings in parts b and c , and comment on the effect of the reduction of debt to zero on the firm’s financial risk.
Candice Masesie M6 Written Assignment Corporate Finance a. Compute the EBIT for each level of sales. b. Compute the EPS for each level of sales, the expected EPS, and the standard deviation of the EPS, and the coefficient of variation of EPS, assuming that there are 10,000 shares of common stock outstanding.
Candice Masesie M6 Written Assignment Corporate Finance CV = σ EPS EPS CV = 1.138 0.18 = 6.32

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