Problem 1 Hello Inc. is an all-equity firm with 500,000 shares outstanding. It has $2,000,000 of EBIT, and EBIT is expec

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Problem 1
Hello Inc. is an all-equity firm with 500,000 sharesoutstanding. It has $2,000,000 of EBIT, and EBIT is expected toremain constant in the future. The company pays out all of itsearnings, so earnings per share (EPS) equal dividends per shares(DPS), and its tax rate is 40%. The company is considering issuing$5,000,000 of 9.00% bonds and using the proceeds to repurchasestock. The risk-free rate is 4.5%, the market risk premium is 5.0%,and the firm's beta is currently 0.90. However, the CFO believesthe beta would rise to 1.10 if the recapitalization occurs. (Inputyour answer at 2 decimal places e. g. 4.00; 4.55)
Problem 2
Antonio Company has fixed operating costs of P380,000, variableoperating costs of P16 per unit, and a selling price of P63.50 perunit. (Input your answer at 2 decimal places e. g. 4.00;4.55). At 10,000 units sold, what is the degree of operatingleverage?
Problem 2
Firm R has sales of 100,000 units at P2 per unit, variableoperating costs of P1.70 per unit and fixed operating costs ofP6,000. Interest is P10,000 per year. Firm W has sales of 100,000units at P2.5 per unit, variable operating costs of P1 per unit,and fixed operating costs of P62,500. Interest is 17,500 per year.Assume both firms are in the 40% tax bracket.
Compute the degree of operating leverage (DOL) for firm R.(Input your answer e. g. 2.25) 24. Compute the degree of financialleverage (DFL) for firm R. (Input your answer e. g. 2.25) Computethe degree of total leverage for firm W. (Input your answer e. g.2.25)
Which firm has less operating (business) risk? (Input youranswer e. g. R or W)
Which firm has more financial risk? (Input your answer e. g. Ror W)
21.Assuming the shares could be repurchased at the price thatexisted prior to the recapitalization, what would the price pershare be following the recapitalization?