1. Firm A has $10000 in assets entirely financedwith equity. Firm B also has $10

1. Firm A has $10000 in assets entirely financedwith equity. Firm B also has $10000 in assets but these assets are financedby $5000 in debt (with a 10 percent rate of interest) and $5000 inequity. Both firms sell 10000 units of output at $2.50 per unit. Thevariable costs of production are $1 and fixed production costs are $12000. (Toease the calculation assume no income tax.)a. What is the operating income (EBIT) forboth firms?b. What are the earnings after interest?c. If sales increase by 10 percent to 11000 units by what percentage will each firms earnings after interest increase? To answer the question determine the earnings after taxes and compute thepercentage increase in these earnings from the answers you derived in partb.d. Why are the percentage changes different?