Question 1: Find Routers Degree of Operating Leverage (DOL), as well as Degree of Financial Leverage (DFL), and then the Degree of Total Leverage (DTL) at the expected sales level for each of the plans listed below. Then please compare the degree of leverage approach to the type of analysis we have done previously in the case uploaded called Team A Module 2 Cost of Capital Recommendations for Power line Network Corporation (1).docx.
Expected sales and operating leverage inputs for 2 plans:
Plan 1 (low fixed costs) expected sales of 14,000 units with revenue $5,376,000,000, Variable Cost/unit $329, Total fixed Op. Costs $400,000, Non-cash component of FC $200,000, Maximum units of Capacity, Required Capital (or assets) $1,500,000
Plan 2 (high fixed costs) expected sales of 16,000 units and revenues of $6,144,000,000, Variable cost/unit $150, Total Fixed Op. Costs $2,800,000, Non-cash component of FC $1,400,000, maximum units of capacity 35,000, Required Capital (or assets) $4,000,000
Both Plans expect the unit price to be $384, Unit demand (Expected) 16,000, and the tax rate of 40% (Half of the fixed operating costs in these plans are cash, and the other half are depreciation and amortization charges)
Question 2: Please discuss Modigliani and Millers theory of capital structure, including their theory with corporate taxes and their theory without corporate taxes. Then explain the tradeoff model and contrast it with Modigliani and Miller's with-tax model. Are either of both of these theory's consistent with our recommended capital structure for Router of 40% debt financing as stated in the upload Powerline_Case3 - #13?
Attachment:- Assignment Files.rar