Financing Strategy Problems
Prepare a response to Problem 1 in Ch. 20 of Basic Finance.
NOTE: STUDENTS OFTEN GET THIS WRONG BY NOT SELECTING THE RIGHT TEXT WHICH IS: BASIC FINANCE
A.) What is the operating income (EBIT) for both firms?
B.) What are the earnings after interest?
C.) If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers you derived in part b.
D.) Why are the percentage changes different?