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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 $29 million in invested capital, has $5.8 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 55% and pays 13% 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. Round your answers to two decimal places.
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A life insurer owes $550,000 in 8 years. To fund this outflow the insurer wishes to buy strips that mature in 8 years. The strips have a $5,000 face value per strip and pay a 6% APR with semiannual compounding. How much must the insurer spend n..
Blue Water Designs is making a bond offering with a 7% coupon rate and a face value of $1,000. The bonds will be repaid in five years. The company plans to issue the bonds at par value and pay interest semiannually.
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