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Makovka662 [10]
4 years ago
12

2. Business and financial risk The impact of financial leverage on return on equity and earnings per share Consider the followin

g case of Lost Pigeon Aviation: Suppose Lost Pigeon Aviation is considering a project that will require $400,000 in assets. • The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. • Common equity outstanding will be 10,000 shares. • The company incurs a tax rate of 35%. If the project is financed using 100% equity capital, then Lost Pigeon Aviation’s return on equity (ROE) on the project will be
Business
1 answer:
Anarel [89]4 years ago
4 0

Answer:

Return on equity = 6.5%

Explanation:

<em>Return on equity (ROE) is the proportion of the equity capital that is earned as net profit. This is calculated using the formula below:</em>

Return on equity = Profit after tax / equity value × 100

Profit after tax =( EBIT - interest)× (1-T)

Profit after tax =  (40,000 - 0)× (1-0.35) = 26,000

The total worth of equity would be equal to the cost of the assets . This is so because it project is financed entirely by equity.

Hence worth of equity = $400,000

Return on equity =  (26,000 /400,000) × 100 =6.5%

Return on equity = 6.5%

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What are the differences between flexibility and compromise
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Answer:

Flexibility mean you're more flexible about doing something. For example you could have flexible working hours which would mean you can work alot of the time like you can bend easily around when you work and compromise means you're wiling to meet in the middle so an agreement made that makes everyone happy.

5 0
3 years ago
Phipps Company borrowed $25,000 cash on October 1, 2016, and signed a nine-month, 8% interest-bearing note payable with interest
anzhelika [568]

Answer:

The correct option is C,$500

Explanation:

The amount of interest accrual is the interest on the sum borrowed from October 1 2016 to 31 December 2016,that is 3 months of interest,which is computed below:

Accrued interest =principal*stated interest rate*number of accrued months/12

principal is $25,000

stated interest is 8%

number of accrued months is 3

accrued interest =$25,000*8%*3/12=$500

The accrued interest is to be debited interest expense  because it is an increase in expense  and credited to interest payable as a liability

5 0
3 years ago
The use of a differentiation strategy would be expected to be LEAST effective in which of the following markets? a. Commodity go
Tema [17]

Answer:

The correct answer is letter "A": Commodity goods.

Explanation:

A differentiation strategy is an approach adopted by companies to make the goods or services they offered unique compared to their competitors. Most firms tend to use price as the main key to the difference between their products and the competitors'.

Thus, <em>the differentiation strategy is less likely to be applied in commodity goods because they are inherently unique such as oil, natural gas, precious metals or foreign currencies</em>.

3 0
3 years ago
Ten years ago, Ginny inherited $50,000 from her grandmother. She decided to invest all of this money in GE stock. Suppose she de
leva [86]

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$14,500

Explanation:

The size of Ginny's taxable capital gain = $64,500 - $50,000 = $14,500

Note: Capital gains tax is a tax on the profit realized on the sale of a non-inventory asset.

8 0
4 years ago
Chicago Company has a subsidiary in Germany where it generates large profits. The subsidiary remits most of its earnings to the
matrenka [14]

Answer:instructing the German subsidiary to borrow euros from a bank in Germany

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The Chicago Company will instruct the German subsidiary to lend Euro from bank in Germany.

6 0
4 years ago
Read 2 more answers
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