Answer Happy

Sales $200,000 300,000 400,000 Probability 0.20 0.60 0.20 The firm has fixed operating costs of $75,000 and variable operating costs equal to 70% of the sales level. The company pays $12,000 in interest per period. The tax rate is 40%. a. Compute the earnings before interest and taxes (EBIT) for each level sales b. Compute the earnings per share (EPS) for each level of sales, the expected EPS, the standard deviation of the EPS, and the coefficient of variation of EPS, assuming that there are 10,000 shares of common stock outstanding. c. Tower has the opportunity to reduce its leverage to zero and pay no interest. This will require that the number of shares outstanding be increased to 15,000. Repeat part (b) under this assumption d. Compare your findings in parts (b) and (c), and comment on the effect of the reduction of debt to zero on the firm's financial risk. c. Tower has the opportunity to reduce its leverage to zero and pay no interest. This will require that the number of shares outstanding be increased to 15,000. Repeat part (b) under this assumption Calculate the EPS below: (Round to the nearest dollar except for the EPS which should be rounded to the nearest cent.) 0.20 Probability EBIT $ $ Less: Interest Earnings before taxes $ Less: Taxes $ Earnings after taxes $ EPS $