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
X has 10 shareholders, each of whom owns 100 of its 1,000 outstanding shares of common stock (worth $100 per share).  No other stock is outstanding.  Determine whether the securiti

Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and management

differentiate between pricing efficiency and allocative efficiency

problem 1 (a) (i) Define Corporate Governance. (ii) Show the ethical implications behind Corporate Governance. (b) (i) Why do organizations engage in social accounting?

Question: A U.S company has a liability of € 10 million in fixed rate loans outstanding at 6%. A German company has a $15 million Floating Rate Note outstanding at LIBOR. The e

reasons for capital rationing in public sector

1. Use the bond price, yield-to-maturity, and quantity available you collected for each bond in Component 2 for this project to estimate an average current bond price and an averag


What effect have mergers and acquisitions had on a customers access to branches? A: A branch closing which has resulted from a merger need not necessarily mean a lost relations

The case company is a mail order/Internet apparel retailer operating only in the Netherlands. It divides each year into two selling seasons, spring-summer (December-June) and autum