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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.
Hafers, an electrical supply company, sold $3,200 of equipment to Jim Coates Wiring, Inc. Coates signed a promissory note May 12 with 3.75% interest. What proceeds will Hafers receive.
Assume that a specialty group has the following cost structure and that the group expects to perform 7,500 procedures in the coming year: Fixed costs $500,000 Variable Cost per procedure $25
My employer has a 9 percent bond outstanding. Both bonds have 13 years to maturity, make semiannual interest payments, and have a YTM of 6 percent.
You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries
the real risk-free rate is 2.75%, inflation is expected to be 1.5% this year and 3.75% during the next 2 years. assume that the maturity risk premium is zero. what is the yield on 2-year treasury secutities
Miiler Manufacturing has 4 million shares of commonstock outstanding. The currentshare price is $76, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding.
You are 25 years old and decide to start saving for your retirement. You plan to save $5000 at the end of each year (so the first deposit will be one year from now), and will make the last deposit when you retire at age 65.
Every three months, she deposits $400 in her bank account, which earns 8 percent annually but is compounded quarterly. On December 31, 2007, she used the entire balance in her bank account
You're prepared to make monthly payments of $225, beginning at the end of this month, into an account that pays 10 percent interest compounded monthly.
Suppose that LilyMac Photography expects EBIT to be approximately $500,000 per year for the foreseeable future, and that it has 2,000 10-year, 8 percent annual coupon bonds outstanding.
An investment has an installed cost of $567,382. The cash flows over the four-year life of the investment are projected to be $196,584, $240,318, $188,674, and $156,313. If the discount rate is infinite, what is the NPV
1) The equipment costs $250,000. 2) It costs $200,000 per year to operate. 3) It has an economic life of five years and is depreciated using the straight-line method.
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