# Firm A Firm B units Price Variable Cost Fixed Costs Interest Expense Tax Rate 200.00 300.00...

Firm A Firm B units Price Variable Cost Fixed Costs Interest Expense Tax Rate 200.00 300.00 180.00 2,400.00 500.00 0.25 units Price Variable Cost Fixed Costs Interest Expense Tax Rate 2,000.00 8.00 4.50 2,400.00 500.00 0.25 Sales 200 units at 300 dollars Less Variable Costs (180 at 200 units) Fixed costs Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Income tax expense Earnings after taxes (EAT) 60,000.00 36,000.00 2,400.00 21,600.00 500.00 21,100.00 5,275.00 15,825.00 Sales 2000 units at 8 dollars Less Variable Costs (4.5 at 2000 units) Fixed costs Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Income tax expense Earnings after taxes (EAT) 16,000.00 9,000.00 2,400.00 4,600.00 500.00 4,100.00 1,025.00 3,075.00 Part 1 Using the Income Statements (above), compute the degree of operating leverage, degree of financial leverage, degree of combined leverage, and the break-even point in units for each firm. a. Degree of operating leverage times times b. Degree of financial leverage times times c. Degree of combined leverage times times d. Break-even point in units units units Part 2 Which firm is riskier? Why?

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