Question: D: DROP DOWN OPTIONS FOR ALL: [EQUITY FINANCING/FINANCIAL LEVERAGE] Firm A has $10,900 in assets entirely financed with equity. Firm B also has $10,900 in

D: DROP DOWN OPTIONS FOR ALL: [EQUITY FINANCING/FINANCIAL LEVERAGE] Firm A

D: DROP DOWN OPTIONS FOR ALL: [EQUITY FINANCING/FINANCIAL LEVERAGE]

Firm A has $10,900 in assets entirely financed with equity. Firm B also has $10,900 in assets, but these assets are financed by $5,450 in debt (with a 12 percent rate of interest) and $5,450 in equity. Both firms sell 15,000 units of output at $2.30 per unit. The variable costs of production are $1, and fixed production costs are $15,000. (To ease the calculation, assume no income tax.) a. What is the operating income (EBIT) for both firms? Round your answers to the nearest dollar. Firm A: $ Firm B: $ b. What are the earnings after interest? Round your answers to the nearest dollar. Firm A: $ Firm B: $ c. If sales increase by 10 percent to 16,500 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. Round your answers to one decimal place. Firm A: % Firm B: % d. Why are the percentage changes different? -Select- while Firm Buses -Select- The successful use of -Select- . V magnifies the percentage increase in earnings when sales The answers differ because Firm A uses expand

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