Mr$.$ Mumo Manufacturing Co$.$ Ltd has an average selling price of Sh$\mathrm{.}1000$ for a component it manufactures for sale in the local market. Variable costs are Sh$\mathrm{.}700$ per unit and fixed costs amount to Sh$\mathrm{.}17$ million. The company has financed its assets by having issued $40,000$ ordinary shares. Another company in the same industry, Bantu Manufacturers, has the same operating information but has financed its assets with $20,000$ ordinary shares and a loan, which has an interest payments of Sh$\mathrm{.}160,000$ per year. Both companies are in the same $40\%$ tax bracket and have sales of Sh$\mathrm{.}70$ m in the current financial year.

Required:

$($a$)$ For each company, determining the degree of operating leverage and the degree of financial leverage.

$($b$)$ Calculate the degree of combined leverage for each firm. Explain the difference in the result.

$($c$)$ Compute the break$-$even points for the two companies. Explain your observations?

$($d$)$ Calculate the earnings per share $($EPS$)$ at the point of indifference between the two companies$$ earnings.

$($e$)$ Explain the position of Modigliani and Miller $($MM$)$ with respect to the use of leverage in a firm.