Show How Leverage Increases Financial Risk by Calculating the EPS

question 88

Essay

Show how leverage increases financial risk by calculating the EPS and return on shares for a firm with $1 million in 10% debt. The firm also has 50,000 shares outstanding that sell for $40 each. Three states of the economy are possible: a slump under which the firm would have operating income of $150,000, a normal state under which the firm will earn $420,000, and a boom under which the firm will earn $600,000. The firm pays no taxes.

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Definitions:

Campaign Funds

Money raised and spent to finance political campaigns, including the promotion of candidates, policies, or initiatives.

Corporate Contributions

Financial or material support provided by businesses to political campaigns, charitable organizations, or community projects.

Campaign Finance

The funds that are raised and spent to promote candidates, political parties, or policy initiatives in election contexts.

Democide

The murder of any person or people by their government, including genocide, politicide, and mass murder.