FIN 370 Week 5 Chapter 20 Problem 1 (100% Correct with Details Calculation)1. Firm A has $10000 in assets entirely financed with equity. Firm B also has $10000 in assets but these assets are financed by $5000 in debt (with a 10 percent rate of interest) and $5000 in equity. Both firms sell 10000 units of output at $2.50 per unit. The variable costs of production are $1 and fixed production costs are $12000. (To ease the calculation assume no income tax.)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 11000 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?FIN 370 FIN/370 FIN370 Week 5 Individual Assignment Chapter 20 Problem 1FIN 370 Week 5 Chapter 20 Problem 1FIN 370 Chapter 20 Problem 1
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