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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 $16 million in invested capital, has $4.8 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 60% and pays 12% interest on its debt, whereas LL has a 20% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure.
Calculate the return on invested capital (ROIC) for each firm
Calculate the rate of return on equity (ROE) for each firm.
Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt-to-capital ratio from 20% to 60%, even though that would increase LL's interest rate on all debt to 15%. Calculate the new ROE for LL.
You have $6,500 to deposit. Regency Bank offers 15 percent per year compounded monthly (1.25 percent per month), while King Bank offers 15 percent but will only compound annually.
Management is considering an alternative collection procedure to reduce its float. On average, it takes five days from the time customers mail payments until Faust is able to receive, process, and deposit them.
If Sidman reinvests retained earnings in projects whose average return is equal to the stock's expected rate of return, what will be next year's EPS
What are the effects on the after-tax profits and cash flow, if sales increase from $10.6 million to $11.5 million. What are the effects on the after-tax profits and cash flow, if variable costs increase to 60% of sales.
Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of it's earnings. However, investors expect Simpkins to begin paying and dividends, with the first dividend of $.50 coming 3 years from today.
A bond that has a 1000.00 par value and a contract or coupon interest rate of 11.5%. The bonds have a current market value of 1,124.00 and will mature in 10 years. The firm's marginal tax rate is 34%.
You want to buy a new sports car from Muscle Motors for $86,000. The contract is in the form of a 72-month annuity due at a 7.65 percent APR. What will your monthly payment be
A five-year project has an initial fixed asset investment of $300,000, an initial NWC investment of $28,000, and an annual OCF of -$27,000. The fixed asset is fully depreciated over the life of the project and has no salvage value.
McDermott estimates that the new project will generate $900,000 in annual sales at the end of each of the next four years and that operating costs (excluding depreciation) will equal $400,000.
You believe that ABC company will pay a dividend of $2 on its common stock next year. Thereafter, you expect dividends to grow at a rate of 6% per year into the future. If you require a return of 12 percent on your investment
Suppose you bought a 10 percent coupon bond one year ago for $950. The face value of the bond is $1,000. The bond sells for $985 today. If the inflation rate last year was 9 percent
Calculate the current price of the Berkshire Hathaway Finance bond that matures in 2018. What does the spread say about its risk relative to the comparable maturity Treasury
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