Risk Management

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Please submit your term project to this dropbox. The topic of the term paper: Risk Management (ch 12)

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1) How do agency costs and free cash flow relate to capital structure management? (10 points)
2) Identify at least five (5) factors that influence the decision to issue debt. (25 points)
3) Describe the four (4) sources of business risk. (20 points)
4) What are the three (3) determinants of the volatility of a firm’s earnings? (15 points)
5) Welker Products sells small kitchen gadgets for $15 each. The gadgets have a variable cost of $4 per unit, and Welker Products’ fixed operating costs are $220,000 per year. Welker Products’ capital structure includes 55% debt and 45% equity. Annual interest expense is $25,000, and the corporate tax rate is 35%.
a. Calculate the break-even point in units. (10 points)
b. If Welker Products sells 25,000 units, calculate the firm’s EBIT and net income. (10 points)
c. If sales increase ten percent from 25,000 units to 30,000 units, estimate the firm’s expected EBIT and net income. (5 points)
d. Does Welker Products use operating leverage and/or financial leverage? Explain. ( 5 points)

Specifications: APA paper, double spaced, 12 font, 1 inch margin (top, bottom, left and right), and at least three (3) sources.
Upload your answers here in this dropbox.

Due Date: Jul 30, 2020

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