Financial Markets and Institutions
Financial Markets and Institutions
6th Edition
ISBN: 9780077641825
Author: SAUNDERS
Publisher: Mcgraw-Hill Course Content Delivery
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Chapter 11, Problem 7Q
Summary Introduction

To discuss: The three segments of deposit funding and the manner in which its changes over time and strategic effect on these changes on profitable operation of bank.

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Wells and Associates has EBIT of $ 72800. Interest costs are $ 18400​, and the firm has 15600 shares of common stock outstanding. Assume a 40 % tax rate. a. Use the degree of financial leverage ​(DFL​) formula to calculate the DFL for the firm. b. Using a set of EBIT -EPS ​axes, plot Wells and​ Associates' financing plan. c. If the firm also has 1200 shares of preferred stock paying a $ 5.75 annual dividend per​ share, what is the​ DFL? d. Plot the financing​ plan, including the 1200 shares of $ 5.75 preferred​ stock, on the axes used in part ​(b​). e. Briefly discuss the graph of the two financing plans.
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