No Service @ 4 59% 10:54 AM MyDocument PDF - 589 KB FINANCE 1 - ASSIGNMENT 2 NAME Question 1 (10 marks) A new restaurant is ready to open for business. It is estimated that the food cost variable cost) will be 40% of sales, while fixed costs will be $450,000. The first year's sales estimates are $1,250,000. The cost to start up the restaurant will be $2,100,000. Three financing alternatives are being considered to raise $2,100,000 a) 50% equity financing and 50% debt financing at 12% b) 40% equity financing and 60% debt financing in the form of bonds at the rate of 12% c) All equity financing (100% equity, no debt) 1. Compute the degree of operating leverage (DOL) 2. Compute the degree of financial leverage (DFL) and degree of combined leverage (DCL) for each alternative No Service @ 9 59% 10:54 AM MyDocument PDF - 589 KB Question 2 (10 marks) Wato Corporation produces lava lamps to sell to college and high school students. These lamps for $75 each, and cost $35 each to produce. Wazoo has fed costs of $50,000 a) Calculate Waco's break even point. b) How much profit loss) will Wazoo have if it sells 1,000 lamps? 8,000 lamps? Wazoo's president, Jerry Garcia, expects and annual profit of $100,000. How many lamps must be sold to attain this profit? d) In addition to the expected annual profit of $100,000, Wazoo is considering shutting down a part of the production process, selling some of their capital assets and reducing fed costs by one-hall Sourcing of materials for the lamps has increased to cost to $45.00. How many lamps must Wazoo sell now? Given the circumstances, what would their break-even point be