XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operatingcosts of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stockdividends of $24,000. The Company is in the 40% tax bracket.1. Compute XYZ company's Degree of Total Leverage (DTL) and'explain its meaning.2. If XYZ company's Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case ofa 10% increase in sales revenue. Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at10% interest rate, and its common stock currently pays a $2 dividend per share. The stock's priceis currently $20; its dividend is expected to grow at a constant rate of 5 percent per year; its taxrate is 35 percent; and its WACC is 12 percent.1. Calculate the cost of debt and the cost of common stock.2. What percentage of the company's capital structure consists of debt?

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XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stock dividends of $24,000. The Company is in the 40% tax bracket. 1. Compute XYZ company's Degree of Total Leverage (DTL) and'explain its meaning. 2. If XYZ company's Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in sales revenue.

XYZ company expects in the coming year: sales of 40,000 units at $10 per unit, variable operating costs of $4 per unit, fixed operating costs of $30,000, interest of $50,000, and preferred stock dividends of $24,000. The Company is in the 40% tax bracket. 1. Compute XYZ company's Degree of Total Leverage (DTL) and'explain its meaning. 2. If XYZ company's Earnings Per Share (EPS) is currently $7.2, estimate its EPS in case of a 10% increase in sales revenue.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 13P

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