You are considering a stock investment in one of two firms (NoEquity, Inc. and NoDebt, Inc.), both of which operate in the same industry and have identical operating income of $13.5 million. NoEquity, Inc. finances its $75 million in assets with $74 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Inc. finances its $75 million in assets with no debt and $75 million in equity. Both firms pay a tax rate of 30 percent on their taxable income. Calculate the net income and return on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 2 decimal places.) NoEquity NoDebt Net income million Return on assets % million %
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- Proforma balance sheet for the upcoming year is given. The estimated net income is $2,621.60. If the company is planning pay $500 dividends, what should be the external financing needs (EFN)? Assets $20,972.80 Debt Equity $20,972.80 Total Total Proforma Balance Sheet Multiple Choice O O -$208.8. $208.8. $500. $291.2. -$500. $11,000.00 $10,181.60 $21,181.60LL R You are considering a stock investment in one of two firms (LotsofDebt, Inc. and LotsofEquity, Inc.), both of which operate in the same industry, LotsofDebt, Inc. finances its $36.00 million in assets with $33.00 million in debt and $3.00 million in equity. LotsofEquity, Inc finances its $36.00 million in assets with $3.00 million in debt and $33..00 million in equity. Calculate the debt ratio. (Round your answers to 2 decimal places.) LotsofDebt, Inc. LotsofEquity. Ino Calculate the equity multiplier. (Round your answers to 2 declmal places.) Equity multiplier LotsofDebt, Inc. LotsofEquity. Ine. Calculate the debt-to-equity. (Round your answers to 2 declmal places.) Debt-to-equity LotsofDebt. Inc. LotsofEquity, Inc. Mc <. Prev MED Type here to search DOOH F2 F4 F5 F7 F10 F11 F12 PrtScr 8- & 23 24 2 ) 4. 5. 9. 7. 8. %3D } 1Question Content Area Jenson Co. is considering the following alternative plans for financing the company: Plan 1 Plan 2 Issue 10% bonds (at face) — $2,000,000 Issue $10 common stock $3,000,000 1,000,000 Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000. Round your answers to two decimal places. Earnings per Shareon Common Stock Plan 1 $fill in the blank 1 Plan 2 $fill in the blank 2
- Question One Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Cash OECD Interbank deposits (20%) K25 Liabilities and Equity Deposits Subordinated debt (2.5 years) (0%) K20 K175 K3 Mortgage loans K5 (50%) K70 Cumulative preferred stock Consumer loans Total Assets (100%) K70 K185 Equity Total Liabilities & Equity K2 K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCS), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 1-5 year foreign exchange contracts 1-5 year interest rate swaps 5-10 year interest rate swaps 50% 5% 0.5% 1.5% Required a. What are the risk-adjusted on-balance-sheet assets of the bank as defined under the Basle Accord? b. What is the total capital required for both off- and on-balance-sheet assets? 1 c. Does the bank have enough capital to meet the Basle requirements? If not, what minimum Tier 1 or total…Question One Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Liabilities and Equity Cash K20 Deposits K175 OECD Interbank deposits K25 Subordinated debt (2.5 years) K3 Mortgage loans K70 Cumulative preferred stock K5 Consumer loans K70 Equity K2 Total Assets K185 Total Liabilities & Equity K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), and K300 million in six-year interest rate swaps. Credit conversion factors…Problem 4-3: Recording investment and valuing debt & equity investments At the beginning of the year of 2021, the management of Bitlife, Inc concludes that it has sufficient cash to permit some short-term investments in debt and share securities with 10% to 15%. During the year, the following transactions occurred are as followed. Jan 2 Purchased 300 ordinary shares of GothamCo. for $30,000. Feb 7 Purchased 550 ordinary shares of Scarlett, Inc for $38,500. June 4 Purchased at face value $2,500,000 of Goldman Corp 10 years, 8% bonds. Interest is payable semiannually on June 1 and December 1. Aug 16 Received a cash dividend of $2,5 per share on Gotham Co. ordinary shares. Sept 1 Sold 150 ordinary shares of Gotham Co. at $74 Nov 9 Received a cash dividend of $2 per share on Scarlett, Inc ordinary shares. Nov 30 Sold $750,000 the Goldman Corp bonds at 97. Dec 1 Received the semiannual interest on Goldman Corp. bonds. At December 31, the fair value of Gotham. Co ordinary shares was $90 per…
- Module 6 Question 2 (Individual or component costs of capital) Compute the cost of capital for the firm for the following: a. Currently bonds with a similar credit rating and maturity as the firm's outstanding debt are selling to yield 8.00 percent while the borrowing firm's corporate tax rate is 34 percent. b. Common stock for a firm that paid a $1.05 dividend last year. The dividends are expected to grow at a rate of 5.0 percent per year into the foreseeable future. The price of this stock is now $25.00. c. A bond that has a $1,000 par value and a coupon interest rate of 12.0 percent with interest paid semiannually. A new issue would sell for $1,150 per bond and mature in 20 years. The firm's tax rate is 34 percent. d. A preferred stock paying a dividend of 7.0 percent on a $100 par value. If a new issue is offered, the shares would sell for $85.00 per share. a. The after-tax cost of debt debt for the firm is ________%.Problem 11 (Current Ratio) The Artist Company has P1,312,500 in current assets and P525,000 in current liabilities. Its initial inventory level is P375,000 and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.0?PROBLEM 2 The bank accepted an equity interest in Seal Company in the form of 200,000ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value of the note payable on the date of restructuring is P2,200,000.Requirement:a. What amount should be recognized as gain from debt extinguishment as a resultof the equity swap? b. What amount should be recognized as share premium from issuance of theshares?