Firm A has $9,100 in assets entirely financed with equity. Firm B also has $9,100 in assets, but these assets are financed by $4,550 in debt (with a 12 percent rate of interest) and $4,550 in equity. Both firms sell 15,000 units of output at $2.20 per unit. The variable costs of production are $1, and fixed production costs are $13,000. (To ease the calculation, assume no income tax.)
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Problem 20-01 Firm A has $9,100 in assets entirely financed with equity. Firm B also has $9,100 in assets, but these assets are financed by $4,550 in debt (with a 12 percent rate of interest) and $4,550 in equity. Both firms sell 15,000 units of output at $2.20 per unit. The variable costs of production are $1, and fixed production costs are $13,000. (To ease the calculation, assume no income tax.)
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