FIN 370 Week 5 Complete
Firm A has $10,000 in assets entirely
financed in equity.
Firm B also has $10,000 in assets,
but these assets are financed by $5,000 in debt (with a 10% rate of interest)
and $5,000 equity.
Both firms sell 10,000 units of
output at $2.50 per unit. The variable
costs of production are $1, and the fixed production costs are $12,000. (To ease the calculation, assume no income
tax.)
a)
What
is the opening 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?
-
Determine
the earnings after taxes and compute the percentage increase in these earnings
from the answers derived in part (b).
d) Why are the percentage changes different?
Select a Virtual Organization using
the student website. Assume your organization is privately held, wants to
expand operations, and is faced with three options for expansion:
Going public through an IPO.
Acquiring another organization in
the same industry.
Merging with another organization.
Write a 1,050- to 1,400-word paper in
which you compare and contrast options and make a recommendation about which
strategy the organization must choose. Address the following:
Strengths and weaknesses of each
approach.
Opportunities and threats of each
approach.
Also consider the following as it
relates to all three options should the organization pursue an international
location:
Effects of globalization on
financial decisions.
Factors that contribute to exchange
rate risks.
Mitigating exchange rate risk.
Format your paper consistent with APA
guidelines.
To download the complete paper click FIN
370 Week 5 Complete
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