Question 2 Company ABC expects next year's operating earnings {EBIT} to be $2 million. Suppose it has total assets of$10 million and no debt. It currently has 1 million shares outstanding with a book value of $10 per share. It is planning a capital restructuring to achieve a debt-tobook equity ratio of 1. Based on yields on similar debt in the marlrtetplace1 the company estimates that it will have to pay 6% interest rate if' it issues bonds. The income tax rate applicable to the company is 25%. {a} (b) (C) (d) {E} {0 Before the capital restructuring: Calculate the company's net income and return on equity1 where return on equity is calculated as: Net incomefshareholders' equity. Determine the Degree of Financial Leverage (DFL) at an operating income of 52 million. What is the DFL if operating income is: $500,000 or St million? Explain and comment on the DFL and RUE observed across these 3 levels of'EEIT. After the capital restructuring: Determine the Degree of Financial Leverage [DFL] at an operating income of $2 million. What is the RUE and DFL if' operating income is: $500,000 or $1 million? Compare with the no leverage case and explain your observations. The company expects to produce ] 15,000 units and sell each unit at $100. Variable cost per unit is 380 and xed operating cost is $300,000. Calculate the DOL at \"5,000 units. Determine the number of' units sold and the D-DL if'EBIT is $500,000. Calculate the degree of total leverage {DTL} at 115,000 units sold, based on your answers to parts {b} and {c}. Applying Modigliani and Miller capital structure theory to this example, appraise whether the firm is doing the \"right thing" by moving from an all-equity asset base to a debt equity ratio of 1. Two years have passed and the world economy is slowly recovering after surviving through the pandemic for 2 years. World economies have been dipping into their reserves to nance the hardships caused by the pandemic. Company ABC. being in the biomedical eld: has been doing well and now needs additional funds for expansion. It is considering whether to launch a rights issue or to issue a convertible bond. You have been engaged as a nancial advisor for the company. Compare the differences between a convertible bond and a rights issue from the viewpoint of'the company