EBIT, Corporate Finance

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000. (To ease the calculation, assume no income tax.)

What is the operating income (EBIT) for both firms?
What are the earnings after interest?
If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b.
Why are the percentage changes different?
Posted Date: 10/22/2012 4:48:04 PM | Location : United States







Related Discussions:- EBIT, Assignment Help, Ask Question on EBIT, Get Answer, Expert's Help, EBIT Discussions

Write discussion on EBIT
Your posts are moderated
Related Questions
Who regulates the stock market and the reason for the need for such standard and heavy regulations

what is the agency relationship between shareholders and auditore

a) Explain what you understand by ‘Branding'? b) A ‘Corporate identity' is often viewed as being composed of three parts; state them giving two examples of each. c) ‘Corpo

a)  Use excel of a financial calculator to estimate the IRR of the following business opportunity:  Initial cost of $100,000, expected pre-tax annual cash flows of $54,000 for the

Question: a) Provide an analytical derivation of the Capital Asset Pricing Model (CAPM) and supplement your analysis with diagrammatic illustrations where appropriate. b) T

The cost of capital for a firm can differ from the cost of capital for each of its businesses. When a firm has multiple businesses, it is important to use the cost of capital appro

Question : Alpha Ltd. - an 100% equity company - is following a payout ratio of 40% during the last several years. The financial managers of the company are now considering wh


Seattle Health Plans currently uses zero debt financing.  Its operating income (EBIT) $1 million, and it pays taxes at a 40 percent rate.  It has $5 million in assests and because

Question 1: Compare and contrast the Capital Asset Pricing Model with that of the Arbitrage Pricing Theory. Question 2: (a) Explain the concept of stock market efficien