Show how leverage increases financial risk by calculating the EPS and return on shares for a firm

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Show how leverage increases financial risk by calculating the EPS and return on shares for a firm with $1 million in 10 percent debt.The firm also has 50,000 shares outstanding that sell for $40 each.Three states of the economy are possible:a slump under which the firm would have operating income of $150,000, a normal state under which the firm will earn $420,000, and a boom under which the firm willearn$600,000.The firm pays no taxes.

I am a little confused, is it possible for you guys to break down the steps simpler and briefly explain each one?

Thank you

Posted Date: May 19, 2024 11:06 AM

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Show how leverage increases financial risk by calculating the EPS and return on shares for a firm

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