Problem 2-19 Debt versus Equity Financing (LG2-1)You are considering a stock investment in one of two firms (NoEquity, Inc. and NoDebt, Inc.), both of which operate in the sameindustry 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 answersto 2 decimal places.)NoEquityNoDebtNet incomemillionmillionReturn on assets%%

Return on Asset ( ROA )Total assets of company include debt and equity and return on assets is…

Answered: You are considering a stock investment…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter11: The Cost Of Capital

Section: Chapter Questions

Problem 12PROB

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Question 2 please see the following financial information for Company A and B respectively. Company A Company B Total Assets 250 million 300 million Debt (10%) 50 million 180 million Equity 200 million 120 million Calculate ROE of Company A and Company B when ROA for both of them is12% and 6% respectively. Please show your workings.
LL 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 } 1
Question 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…
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?
Question 6 Calculate the WACC for a company using the following information: Ordinary shares R2 000 Preference shares R5 000 Long-term debt R3 000 Shareholders of preference shares require a return of 12%. Shareholders of ordinary shares require a return of 8%. Financial loan bears interest at the prime rate of 7%.
2:01 mylab.pearson.com/S Data table (Related to Checkpoint 4.2) (Capital structure analysis) The liabilities and owners' equity for Campbell Industries is found here: Accounts payable Notes payable Current liabilities Long-term debt Common equity a. What percentage of the firm's assets does the firm finance using debt (liabilities)? b. If Campbell were to purchase a new warehouse for $1.2 million and finance it entirely with long-term debt, what would be the firm's new debt ratio? $514,000 $255,000 $769,000 $1,294,000 $5,326,000 Total liabilities and equity $7,389,000 Click on the icon in order to copy its contents into a spreadsheet.) a. What percentage of the firm's assets does the firm finance using debt (liabilities)? The fraction of the firm's assets that the firm finances using debt is 27.21 %. (Round to one decimal place.) Print ||| = 1 LTE2.II 4G Done + @ O I 72% 2 : X

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