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
The problem considered is that of forecasting demand for single-period products before the period starts. We study this problem for the case of a mail order apparel company that ne

Book Value of Equity: This is the measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid

Q. How could phoenix activity be addressed? A range of actions have been suggested to mitigate phoenix activity. These suggested actions were selected on the basis of: - pr

discuss advantages and disadvantages of alternative dividend polices,ieno dividend pay out for the pst five years,dividend of 50% of earnings paid out,a low but constant dividend p

Questions: (a) i. Negotiation of letter of credit- request to confirming Bank to pay upon handing-over and verification of documents in relation to a confirmed letter of

#the managing directors of three profitable listed companies discussed their company''''s dividend policies. company A has deliberately paid no dividends for the past five years. c

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

just to be absolutely clear, is this the cash revues less the cost of the project less the initial outlay. Could you provide me with the makeup?.

Question: Trade finance is much facilitated by banks' intervention as guarantors for the execution of financial commitments on behalf of importers. Banks provide a large variet

You are a new member of the accounting team and have been asked to examine the accounts of Bellatrix and calculate appropriate ratios in order to evaluate the company's performance