Standard deviation and coefficient of variation

Assignment Help Financial Management

Reference no: EM131357338

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $14 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.2 million with a 0.2 probability, $1.8 million with a 0.5 probability, and $0.7 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations.

Debt/Capital ratio is 0.

RÔE =

σ =

CV =

Debt/Capital ratio is 10%, interest rate is 9%.

RÔE =

σ =

CV =

Debt/Capital ratio is 50%, interest rate is 11%.

RÔE =

σ =

CV =

Debt/Capital ratio is 60%, interest rate is 14%.

RÔE =

σ =

CV =

Reference no: EM131357338

Questions Cloud

What is the optimum order size : Massa Machine Tool expects total sales of $19,000. The price per unit is $8. The firm estimates an ordering cost of $13.28 per order, with an inventory cost of $1.12 per unit. What is the optimum order size?

Which ones are translated rates under temporal method : Given the following five balance sheet items, indicate which ones are translated rates under the temporal method and the current rate method.

Calculate rate of return on equity for each firm : Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $12 million in invested capital, has $2.4 million of EBIT, and is in the 40% federal-plus-state tax bracket. Calculate the retu..

Make the last of your forty investments : You have forty years until you retire. Today you have no investments. At the end of the year, you will make the first of 40 annual investments of $5,000 in an account that returns 7%, how much will you have on the day that you make the last of your f..

Standard deviation and coefficient of variation : The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $14 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital s..

What is current price : Gilmore, Inc., just paid a dividend of $2.40 per share on its stock. The dividends are expected to grow at a constant rate of 6.25 percent per year, indefinitely. Assume investors require a return of 12 percent on this stock. What is the current pric..

What is cost of retained earnings : A firm's stock is selling for $78. The next annual dividend is expected to be $4.00. The growth rate is 7%. The flotation cost is $7. What is the cost of retained earnings?

Financial capital includes all of the except : Financial capital includes all of the following except

Struggling to escape a legacy of oppression : key issues your sections describe Please note you are not writing two separate summaries: you are writing one summary that merges its coverage of the key issues in the two assigned sections.

User Account

All Pages