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Firms HL and LL are identical except for their leverage ratios and the interest rates they pay on debt. Each has $25 million in assets, $5 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt ratio (D/A) of 50% and pays 13% interest on its debt, whereas LL has a 40% debt ratio and pays only 10% interest on its debt.
Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places.
a. ROE for firm LL is %
b. ROE for firm HL is %
Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt ratio from 40% to 60%, even though that would increase LL's interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places.
Suppose you are reviewing the exchange rates for the Irish Punt (P), the Swiss Franc (SF), and the U.S. Dollar ($). You see the following quotes: P 3 per $1; SF 9 per $1. What is the cross-rate for Punts per Swiss Franc?
Depending upon the state of the economy, Ables Manufacturing Corporation expects to sell the following number of prefabricated buildings. The probability of each state is indicated.
Tom Busby owes $20,000 now. A lender will carry the debt for four more years at 8 percent interest. That is, in this particular case, the amount owed will go up 8% each year for 4-years.
Assume that retained earnings increased by $400,000 from December 31, 2011, to December 31, 2012, for Jarvie Distribution Corporation. During the year, a cash dividend of $135,000 was paid.
At each question the solution cell must contain the Excel formula (Function) that produced the answer. Replace the existing numerical contents. Also add a brief explanation of how the answer was derived and the significance of the question in unde..
Some critics, particularly U.S. politicians, have argued that China is keeping the exchange rate of its currency (the yuan) artificially low as a form of trade protectionism resulting in large trade surpluses with the U.S.
The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Mike's is 1.7, then what is the risk-free rate?
Calculate the NPV and IRR for each type of truck and decide which to recommend.
Calculate the yield on OPQ stock . Earning per share are 2.75 and the quarterly dividend is 25 cents . The book value is 15.20 per share while the market value is 25.00.
How does the use of dual distribution channels and multichannel systems affect the growth of a business? Please list references used.
This money is expected to provide you a monthly income in the amount of $6,000 for 25 years. How much interest did you earn during the accumulation stage and how much interest will you earn during the retirement stage?
At what discount rate would you be indifferent between accepting the project and rejecting it?
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