Question details

FIN 370 –Individual Assignment Week Five
$ 10.00

FIN 370 –Individual Assignment Week Five


Chapter 20Problem 1


1. Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000. (To ease the calculation, assume no income tax.)

a. What is the operating income (EBIT) for both firms?

Available solutions