computer company which produces computer pieces, wants to renew their technology

Question

computer company which produces computer pieces, wants to renew their technology. if the company adapts to new technology their variable total cost will decrease to half of the current variable total cost but on the other hand fix costs will be increase in 100% percent. This company has two way to finance their new technology

1) debt financing but cost of interest rate will be increase $70.000 more

2)increasing equity financing

Question:

iif you were a financial adviser of these company, what would suggest to company about the way taht mentioned above?

Q:50.000 units

P: $20

TVC: $400,000

FC:$200,000

Interset:$125,000

please show the solution process step by step

Explanation / Answer

1.951219512

PARTICULARS Equity Financing Debt Financing Sale units 50000 50000 Sales 1000000 1000000 Less: Total Variable Cost 400000 200000 Contribution 600000 800000 Less: Fixed Costs (double in 200000 400000 EBIT 400000 400000 Less: Interest 125000 195000 EBT 275000 205000 Financial leverage =EBIT/EBT 1.454545455

1.951219512

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