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Firm 1 has a capital structure with 20 percent debt and 80 percent equity. Firm 2's capital structure consists of 50 percent debt and 50 percent equity. Both firms pay 7 percent annual interest on their debt.
Finally, suppose both firms have invested in assets worth $100 million. Calculate the return on equity (ROE) for each firm, assuming the following:
a. The return on assets is 3 percent.
b. The return on assets is 7 percent.
c. The return on assets is 11 percent. What general pattern do you observe?
The literature on attribution processes identifies a number of "biases" in the processes by which we perceive other persons. How do these biases influence the impressions we form of others as we interact with them? In particular, to what extent and i..
Kennedy Air Services is now in the final year of a project. The equipment originally cost $34 million, of which 80% has been depreciated. Kennedy can sell the used equipment today for $8.5 million, and its tax rate is 35%. What is the equipment's aft..
Suppose that you are considering making a working capital loan to a business customer of your bank. You do the cash to cash cycle analysis and determine that the firm's daily average cost of goods sold is $ 50,000. What does this mean?
Erna Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. Erna Corp. also has two bond issues outstanding. Suppose the most recent dividend was $4.10 and the dividend growth rate ..
Suppose the Federal Reserve increased deposits by $100 billion, but the reserve requirement on all deposits was 100%. What impact would the change in deposits have on the money supply?
The machinery required for a three year project costs $20,000, belongs in a 15% CCA class, and will require a net working capital investment of $5,000 up-front. The project generates after-tax operating income of $11,500.
The Health care issue is a great topic of debate between people these days. Conduct research about the current Health Care reform law and how it could affect your personal financial plan?
The company with the common equity accounts shown here has declared a 5-for-one stock split when the market value of its stock is $33 per share. What is the new par value per share? What was last year's dividend per share?
CPM Construction plans to buy a truck for $150,000 and expects $100,00/year as an income. The company plans to sell it fro $15,000 at the end of Year 5. The annual operating cost of the vehicle is $60,000. 1) What is the IRR of this investment? 2) If..
Assume that you just won the state lottery. Your prize can be taken either in the form of $42,000 at the end of each of the next 25 years (i.e., $1.05 million over 25 years) or as a lump sum of $490,000 paid immediately? At approximately what interes..
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .6 percent per year, compounded monthly for the first six months, increasing thereafter to 16.6 percent compounded monthly. Assume you transfer t..
Over the past six years, a stock had annual returns of 14 percent, -3 percent, 8 percent, 21 percent, -16 percent, and 4 percent, respectively. What is the standard deviation of these returns? 15.08 percent 11.27 percent 14.40 percent 13.59 percent 1..
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