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After uploading your assignment, download and open it to make sure that the file is not corrupted.

Please keep at least $2$ decimal points for dollar amounts and at least $4$ significant digits for rates.

Question $2$

ASpace Inc. is a new startup that produces ultra speed SSD drives. It is considering two production

options. The expected selling price is $$150$ per unit. Option $1$ uses a high efficiency machine that has

annual fixed costs of $$980,000$ and a variable cost per unit of $$45.$ Option $2$ uses a standard machine

that has annual fixed costs of $$480,000$ and a variable cost per unit of $$75.$ ASpace plans to produce

$25,000$ units annually.

a$)$ What is the breakeven quantity of the two options $($the sales quantity that they have the same EBIT$)?$

b$)$ For both options, calculate the percentage change in EBIT if quantity increases to $30,000$ units.

c$)$ Use the answer in c$),$ calculate their DOL.

d$)$ For both options, calculate the percentage change in EBIT if quantity decreases to $15,000$ units.

e$)$ Use the answer in d$),$ calculate their DOL.

f$)$ Using the formula in $"$DTL Formula.pdf$",$ calculate their DOL when quantity is $15,000$ units, $20,000$

units and $30,000$ units for both options.

Assume ASpace selects option $1$ and sales quantity is $25,000$ units per year. The tax rate is $25\%.$ ASpace

has $$1,250,000$ debt with an annual coupon of $15\%.$ It currently has $225,000$ common shares

outstanding and plans to issue $35,000$ new shares to repay $$250,000$ debt.

g$)$ Calculate the EPS of the current capital structure and the proposed structure.

h$)$ What is the breakeven EBIT of the current and proposed capital structures?

i$)$ Calculate the DFL of the two capital structures.

j$)$ Calculate the current DTL$.$