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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.
Jay Linoleum Corporation has fixed costs of $70,000. Its product currently sells for $4 per unit and has variable costs per unit of $2.60. Mr. Thomas, the head of manufacturing,
On a typical day, ABCD corporation writes 8,000 in checks. It generally takes 3 days for those checks to clear. Each day the firm typically receives $13,000 in checks that take 4 days to clear. What is the firm's average net float?
Make research on financial services industries. Identify the prevalent employee benefit practices for that industry. Explain the discretionary benefits that are offered in your chosen industry.
Upstate Water Company just sold a bond with 80 warrants attached. The bonds have a 20-year maturity and an annual coupon of 12%, and they were issued at their $1,000 par value. Currently, the yield on similar straight bonds is 15%. What is the imp..
Describe the steps to take for a money market hedge. You need to show clearly the amounts that are related to the actions to take.
Conduct Internet research on success rate of corporate combinations over the past 20 years. Describe your findings.
You can purchase property today for $3.3 million and sell it in 5 years for $4.3 million. (You earn no rental income on the property.)
The relationship of corporate income taxes, personal income taxes on equity investments, and personal income taxes on interest income should have a predictable change in debt ratios; which of the following predicts increasing debt ratios?
The new lathe is expected to be sold for $5,000 at the end of the project's ten-year life. What is the project's terminal cash flow?
Most spreadsheets do not have a built-in formula to calculate the payback period. Write a VBA Script that calculates the payback period for a project.
The last dividend paid by Marquette Inc. was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its ..
Which one of these is most apt to be a fixed cost? raw materials manufacturing wages management bonuses office salaries shipping and freight check my work.
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