A++ solution provided.Firm A has $10000 in assets entirely financed with equity.

A++ solution provided.Firm A has $10000 in assets entirely financed with equity. Firm B alsohas $10000 in assets but these assets are financed by $5000 in debt(with a 10 percent rate of interest) and $5000 in equity. Both firms sell10000 units of output at $2.50 per unit. The variable costs of productionare $1 and fixed production costs are $12000. (To ease the calculationassume 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 what percentagewill each firms earnings after interest increase? To answer the questiondetermine the earnings after taxes and compute the percentageincrease in these earnings from the answers you derived in part b.d. Why are the percentage changes different?