i. Distinguish between "Operating Leverage and Financial Leverage" with illustrations. appropriate (06 marks) ii. Mahendren is an entrepreneur and has recently set up a manufacturing unit of plastic bottles. He currently sells 2 million bottles a year at Rs. 25 each. His variable cost to produce a bottle is Rs. 15 and he has Rs. 2,500,000 in fixed costs. His total value of assets is Rs. 2,000,000 and 30 per cent of his assets are financed with 10% debt, with the balance being financed by ordinary shares of Rs. 20 Per share. The tax rate is 30 per cent. His newly appointed finance manager, Chaminda feels that Mahendren is doing it all wrong. By reducing his price to Rs. 22 per bottle, he could increase his sales volume of plastic bottles by 40 per cent. Fixed costs would remain constant, and variable costs would remain at Rs. 15 per unit. Furthermore, he could increase his debt to assets ratio to 40 per cent, with the balance in shares. It is assumed that the interest rate would go up by 1 per cent and that the price of shares would remain constant. a. Compute the earnings per share (EPS) under Mahendren's and Chaminda's plans. Is Chaminda's perception right? b. Determine the degree of operating, financial, and combined leverages under each plan. c. What is the effect on the total risk of the firm on switching from one plan to another? (14 marks)