(Answered) Principles of finance

Company X wants to create additional supply development space. The additional space will cost $450,000. The expansion can be financed either by bonds at an interest rate of 8%, or by selling 40,000 shares of common stock at $20 per share.;Current Income Statement;Sales $2,900,000;Less: Variable cost (25%) $392,000;Fixed cost 475,000;EBIT 867,000;Less: Interest expense 432,000;EBT 435,000;Less: Taxes @7% 30,450;EAT $404,550;Shares 127,000;Earnings per share $ 3.19;Lets say after the additional supply space, sales are expected to go up $109,500.;Variable cost will remain at 30% of sales, and fixed cost will go up $333,000. The tax rate is 30%.;() calculate the degree of operating leverage, the degree of financing leverage, and the degree of combined leverage before expansion.;(()) develop the income statement for two financial plans, Debt and Equity.;((())) calculate the degree of operating leverage, the degree of financial leverage, and degree of combined leverage after expansion, for the 2 financing plans.
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Principles of finance

 


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