Company A has a ROA of 8% and a ROE of 12 % . Company B has a ROA of 7% and an ROE of 15%. What does this tell us about the relative levels of debt financing between these two companies? Which company's approach is better?

You have the following information about two firms, Debt Free, Incorporated and Debt Spree, Incorporated. Both firms have the same prospects for sales and EBIT, and both have the same level of assets, tax rate and borrowing rate. They differ in their use of debt financing.   Scenario Sales EBIT Bad year $ 200 $ 12 Normal year $ 275 $ 38 Good year $ 380 $ 46     Debt Free Debt Spree Total assets $ 250 $ 250 Tax rate 21% 21% Debt $ 0 $ 150 Equity $ 250 $ 100 Borrowing rate 16% 16%   Required: a. Calculate the interest expense for each firm: Interest expense for Debt Free = $ Interest expense for Debt Spree = $     b. Calculate the following items for each firm for each scenario (bad year, normal year, good year): return on assets (ROA), net profit, and return on equity (ROE). (Use a minus sign to indicate negative answers. Round your answers to 2 decimal places.)     Debt Free Debt Spree Scenario ROA   Net Profit ROE   ROA   Net Profit ROE   Bad…

For a company holding significant net financial assets (NFO), after issuing some new debt, its risk in operation should be_____ as before issuing the debt; and its required rate of return of equity should be ______ as before. A. the same as .... the same as B. lower than ... lower than C. higher than ... higher than D. the same as ... higher than Please donot provide solution in image format and provide solution in step by step format and asap

The financial manager of a firm determines the following schedules of cost of debt and cost of equity for various combinations of debt financing:   Debt/Assets After-Tax Cost of Debt Cost of Equity 0 % 4 % 7 % 10   4   7   20   4   7   30   4   9   40   5   10   50   5   12   60   8   13   70   8   15     Find the optimal capital structure (that is, optimal combination of debt and equity financing). Round your answers for the capital structure to the nearest whole number and for the cost of capital to one decimal place. The optimal capital structure:   % debt and   % equity with a cost of capital of   % Why does the cost of capital initially decline as the firm substitutes debt for equity financing? The cost of capital initially declines because the firm cost of debt is  than the cost of equity. Why will the cost of funds eventually rise as the firm becomes more financially leveraged? As the firm becomes more financially leveraged and riskier, the cost of debt…