1. Firm A has $10000 in assets entirely financed with equity.Firm B alsohas $100

1. Firm A has $10000 in assets entirely financed with equity.Firm B alsohas $10000 in assets but these assets are financed by $5000 indebt(with a 10 percent rate of interest) and $5000 in equity. Bothfirms sell10000 units of output at $2.50 per unit. The variable costs ofproductionare $1 and fixed production costs are $12000. (To ease thecalculationassume no income tax.)a. What is the operating income (EBIT) for both firms?b. What are the earnings after interest?c. If sales increase by 10 percent to 11000 units by whatpercentagewill each firms earnings after interest increase? To answer thequestiondetermine the earnings after taxes and compute the percentageincrease in these earnings from the answers you derived in partb.d. Why are the percentage changes different?