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3 years ago

When a corporation has both preferred and common stock outstanding, earnings per share is computed by dividing net income

Business

1 answer:

vodka [1.7K]3 years ago

5 0

Answer:

D) less preferred dividends by weighted average of common shares outstanding.

Explanation:

When you want to calculate earnings per stock, you will do it for common stocks, not preferred stock. Therefore the dividends paid (or payable) to preferred stockholders must be deducted from net income, and then you divide net income by common stocks outstanding to get earnings per stock.

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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

erik [133]

Answer:

A. ROIC for firm LL 12%

ROIC for firm HL 12%

B. ROE for firm LL 13.5%

ROE for firm HL 18.6%

C. New ROE for firm LL 16.5%

Explanation:

A. Calculation to determine the return on invested capital (ROIC) for each firm

Using this formula

ROIC=EBIT(1-T)/Total Invested Capital

Let plug in the formula

ROIC=$5 million(1-.40)/$25 million

ROIC=$5 million*.60/$25 million

ROIC=$3 million/$25 million

ROIC=0.12*100

ROIC=12% for both firms

Therefore the return on invested capital (ROIC) for each firm is:

ROIC for firm LL is 12%

ROIC for firm HL is 12%

B. Calculation to determine the rate of return on equity (ROE) for each firm.

Calculation for ROE for firm LL

First step is to calculate the Debt

Debt=$25 million*20%

Debt=$5 million

Second step is to calculate the Debt Interest

Debt Interest=$5 million*10%

Debt Interest=$500,000

Third step is to calculate the EBIT of firm LL

EBIT of firm LL=$5 million- $500,000

EBIT of firm LL=$4,500,000

Fourth step is to calculate Tax owed

Tax owed =$4,500,000*40%

Tax owed =$1,800,000

Fifth step is to calculate the Net income of firm LL

Net income of firm LL=$4,500,000-$1,800,000

Net income of firm LL=$2,700,000

Sixth step is to calculate the Equity for firm LL

Equity for firm LL=$25million-$5 million

Equity for firm LL=$20 million

Now let calculate the ROE using this formula

ROE=Net income /Equity

Let plug in the formula

ROE=$2,700,000/$20 million*100

ROE=13.5%

Calculation for ROE for firm HL

First step is to calculate the Debt

Debt=$25 million*55%

Debt=$13,750,000

Second step is to calculate the EBIT of firm HL

EBIT of firm HL=$5 million-[(55%*$25 million)*11%]

EBIT of firm HL=$5 million-($13,750,000*11%)

EBIT of firm HL=$5 million-$1,512,500

EBIT of firm HL=$3,487,500

Third step is to calculate the Tax owed

Tax owed =$3,487,500*40%

Tax owed =$1,395,000

Fourth step is to calculate the Net income of firm HL

Net income of firm HL=$3,487,500-$1,395,000

Net income of firm HL=$2,092,500

Fifth step is to calculate the Equity for firm HL

Equity for firm HL=$25million- $13,750,000

Equity for firm HL=$11,250,000

Now let calculate the ROE using this formula

ROE=Net income /Equity

ROE=$2,092,500/$11,250,000*100

ROE=18.6%

Therefore the rate of return on equity (ROE) for each firm is:

ROE for firm LL is 13.5%

ROE for firm HL is 18.6%

C. Calculation to determine the new ROE for LL

First step is to calculate the debt

Debt=$25 million*60%

Debt=$15 million

Second step is to calculate the Debt Interest

Debt Interest=$15 million*15%

Debt Interest=$2,250,000

Third step is to calculate the EBIT of firm LL

EBIT of firm LL=$5 million- $2,250,000

EBIT of firm LL=$2,750,000

Fourth step is to calculate the Tax owed

Tax owed =$2,750,000*40%

Tax owed =$1,100,000

Fifth step is to calculate the Net income of firm LL

Net income of firm LL=$2,750,000-$1,100,000

Net income of firm LL=$1,650,000

Sixth step is to calculate the Equity for firm LL

Equity for firm LL=$25million-$15 million

Equity for firm LL=$10 million

Now let calculate the New ROE using this formula

ROE=Net income /Equity

Let Plug in the formula

ROE=$1,650,000/$10 million*100

ROE=16.5%

Therefore the new ROE for LL is 16.5%

5 0

3 years ago

The employees of Pi's Pizza, a local pizza restaurant, feel that the owners and managers really try to follow the ethical polici

weeeeeb [17]

Answer: (C) Ethical climate

Explanation:

The ethical climate is one of the organizational based atmosphere where the company basically focuses on the employees ethical values, laws and the environment that helps in making different types of complex decisions.

The main purpose of the ethical climate in an organization is that it helps in maintaining the values, principle and the moral of the company employees.

According to the given question, the Pi's pizza is one of the restaurant that maintain the ethical climate by follow the various types of ethical policies. Therefore, Option (C) is correct answer.

7 0

3 years ago

When Padgett Properties LLC was formed, Nova contributed land (value of $358,500 and basis of $89,625) and $179,250 cash, and Os

lawyer [7]

Answer:Amount of Nova and Oscar's gain=$492,937.50

Explanation:

a)According to Land recorded for § 704(b) book capital account purposes, Land is recorded at fair market value. With this, the Padgett properties should record the land at $358,500

b)From the question, it is given that the basis of land is $89,625. Therefore, the Padgett Properties LLC's tax basis in the land is $89,625.

c)Amount of Nova and Oscar's gain.

Fair market value of Land $358,500

Basis of land $89,625

total $ 448,125

but Gain = Selling price of land - Fair value of Land x interest in partnership profits and capital

= $537,750 - ($358,500+$89,625 )

=($537,750 - $448,125 ) x 50% =$44,812.50

Total gain $448,125 + $44,812.50 =$492,937.50

4 0

3 years ago

Marlin works at an overseas branch of his organization. He needs some clarification about a project. He approaches a senior mana

olganol [36]

Answer:

The correct answer is high Power Distance index.

Explanation:

Power distance refers to the extent to which less powerful members of organizations and institutions (such as the family) accept and expect power to be distributed unevenly. This dimension does not measure the level of distribution of power in a given culture, but analyzes how people feel about it. A low power distance score means that that culture expects and accepts that power relations are democratic and that its members are considered equal. A high score for this index means that less powerful members of society accept their place and are aware of the existence of formal hierarchical positions.

8 0

3 years ago

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically

Anna71 [15]

Answer:

A. $60,000

Explanation

Calculation for what the estimated cost of the ending inventory under the gross profit method would be

First step is to calculate the Gross profit

Gross profit= $300,000 *30%

Gross profit= $90,000

Second Step is to calculate the cost of goods sold

Cost of goods sold=$300,000-$90,000

Cost of goods sold= $210,000

Last step is to calculate the estimated cost of the ending inventory under the gross profit method

Using this formula

Estimated cost of the ending inventory=

Cost of goods available for sale- Cost of goods sold

Let plug in the formula

Estimated cost of the ending inventory=$270,000-$210,000

Estimated cost of the ending inventory=$60,000

Therefore the estimated cost of the ending inventory under the gross profit method would be $60,000

4 0

3 years ago