A. Veta inc., has a asset of $400,000 in total where it comprises of equity 70% and debt of 30% (12%) interest. The company was planning to do some investment and it anticipates the increase of current income from $40,000 to $60,000.

There are two options available to resource finance namely,

A. Share issue of 1,000 at rate of 100.

B. Bond selling of 100,000 with rate of interest 12.5%. There is no preferred stock in the structure of capital.

Find out:

A.Optimal capital structure

B.Degree of Financial Leverage at 50% rate of tax

C.EBIT and EPS at Breakeven point

D.Choose Plan A or Plan B

B. A company was operating business of shipping it is contemplating two cost structures for its operations.

A. The plan has high variable cost pu shipped with lower annual fixed costs

B. The plan has lower variable cost with higher fixed cost.

Details of Cost:

Plan A:

Per shipment revenue=100

Variable cost per shipment delivered=85

cost=1,200,000

Plan B:

Per shipment revenue=100

Variable cost per shipment delivered=60

Cost=4,500,000

Required:

1.BEP (In volumes) for both the plans

2.Under plan A to produce an operating income of 30,000, how many shipments to be made.

3. Shipments to be made under plan A to produce an operating margin which is equal to 9% of sales revenue in total.

4.At the tax rate of 40%, under plan B to produce net income of 180,000, how many shipments to be made.

5.Which plan will be more profitable for the company?Explain with reasons.

6.Which plan will be more risky? Explain (Use DOL)