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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 $28 million in invested capital, has $5.6 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 50% and pays 11% interest on its debt, whereas LL has a 30% debt-to-capital ratio and pays only 9% interest on its debt. Neither firm uses preferred stock in its capital structure. a.Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places.
b.Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places.
c.Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt-to-capital ratio from 30% 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.
Suppose that management believes that a $24,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?
Pension data for Goldman Company included the following for the current calendar year: Determine pension expense for the year.
Which of the "decision" are relevant to the auditor's evidence accumulation?
athens corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours.
Assume Mr. Smith was injured in January 2012 and can no longer work again. How would you calculate his lost earnings Use the spreadsheet attached as a starting point for your analysis. What (if any) accounts should be adjusted
on december 31 2007 parks co. leased a machine from colt for a five-year period. equal annual payments under the lease
Compute the cost variance for Materials price variance, materials quantity variance, labor rate variance, labor efficiency variance, variable overhead spending variance and variable overhead efficiency variance
who do you figure this set up in columns by different taxes?bmx company has one employee. fica social security taxes
finch corporation purchased as asset costing 10000. annual operating cash inflows generated from the asset are expected
Of the following questions, which would NOT be answered by the statement of cash flows?
what are the four different adjusting journal entries? what accounting assumptions necessitate the use of adjusting
explain the difference between a low risk investment and a high risk investment. give examples of investments that
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