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 Bad year Normal year Good year Total assets Tax rate Debt Equity Borrowing rate Sales $200 $ 275 $ 380 Debt Free $ 250 21% EBIT $12 $34 $51 $0 $ 250 16% Required: a. Calculate the interest expense for each firm: Debt Spree $ 250 21% $ 150 $ 100 16%

Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment. NIM=Profit/Interest revenue Bank A Loan 7%                              $90 G-Bond   5%                             ? Deposits    5%                             $70 Equity                                           $40 Total Assets                       $? Total Equity and Deposit        $110 ROE=       66.66%     22.3%     32.6%     4.8%     9.5%     10.4%     52.13%     8.8%

Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table.   Table 1: Information of the firms   Unlevered firm Levered firm EBIT 10,000 10,000 Interest 0 3,200 Taxable income 10,000 6,800 Tax (tax rate: 34%) 3,400 2,312 Net income 6,600 4,488 CFFA 0 -3,200   Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.0, then recalculate the systematic risk of the equity

Need help with the 2 incorrect questions

The following information is available regarding XYZ Co. sales = $250,000net income = $35,000dividends = $10,000total debt = $100,000total equity = $80,000 What growth rate can be supported without outside financing?

Case 2: The risk-free rate is 1.20%, return on market is 13.00%, and corporate tax rate is 20%. Baltic & Friends Corporation is considering four levels of debt financing as in the table below. The manager wishes to select "the right proportion" of debt financing for the company. Currently the firm has no debt financing, and its beta equals 0.85. D/A ratio (%) Interest rate before tax (%) 10 3.80% 25 4.20% 40 4.75% 55 4.90% Questions Answers 1. Calculate cost of equity with leveraged beta at 10% debt 2. Calculate cost of equity with leveraged beta at 25% debt 3. Calculate cost of equity with leveraged beta at 40% debt 4. Calculate cost of equity with leveraged beta at 55% debt % % % % 5. Calculate WACC at 10% debt 6. Calculate WACC at 25% debt 7. Calculate WACC at 40% debt 8 Calculate WACC at 55% debt di % % % %

Assume you are given the following information for firms A and B:   A B D $1,563,400.00 $2,357,316.00 E $2,051,347.00 $1,257,431.00 Price $31.25 $31.25 i 13.52% 13.52% EBIT $97,347.00 $97,347.00 No taxes     How do you replicate an investment in 79% of stock B by using stock A? What is the return of the replicating strategy?

Fujita, Incorporated, has no debt outstanding and a total market value of $450,000. Earnings before interest and taxes, EBIT, are projected to be $57,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 16 percent higher. If there is a recession, then EBIT will be 24 percent lower. The company is considering a $215,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 9,000 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market- to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be…

Use the information in the following table to make a suggestion concerning the proportion of debt that the firm should utilize in its capital structure. Benefit or (cost)   No debt     25% debt     50% debt Tax shield   $0     $15     $25   75% debt  $35   Agency cost   -$10     -$4     -$4     -$16   Financial distress cost   -$3     -$2     -$8     -$19     The firm can maximize firm value by choosing (25%, 50%, 75% or 0%) debt capital structure.

Given the following information, leverage will add how much value to the unlevered firm per dollar of debt?Corporate tax rate: 35%Personal tax rate on income from bonds: 25%Personal tax rate on income from stocks: 30%   A.  $-0.625   B.  $0.287   C.  $0.393   D.  $0.635   E.  None of these