1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Nataly [62]
3 years ago
5

has projected EBIT to be $225,000 for next year. Their tax rate is 21% and there is $`500,000 in equity. Precise Electronics Inc

has no debt currently, but the board is considering a loan of $150,000 at 8% interest, which they will use to repurchase shares of their own stock at $50 per share. If there is a recession, EBIT could be only 75% of projected. If there is an expansion, EBIT might be 40% greater than projected. What will their return on equity be under the current structure and under the proposed structure for each scenario
Business
1 answer:
vodomira [7]3 years ago
7 0

Answer:

current EBIT = $225,000, net income = $225,000 x 0.79 = $177,750

EBIT under expansion = $225,000 x 1.4 = $315,000, net income = $315,000 x 0.79 = $248,850

EBIT under recession = $225,000 x 0.75 = $168,750, net income = $168,750 x 0.79 = $133,312.50

current equity = $500,000

equity under proposed structure = $500,000 - $150,000 = $350,000

interest expense per year under proposed structure = $150,000 x 8% = $12,000

net income current economy = ($225,000 - $12,000) x 0.79 = $168,270

net income economic expansion = ($315,000 - $12,000) x 0.79 = $239,370

net income economic recession = ($168,750 - $12,000) x 0.79 = $123,832.50

return on equity = net income / total equity

ROE under current structure:

  • no change in the economy = $177,750 / $500,000 = 35.55%
  • economic expansion = $248,850 / $500,000 = 49.77%
  • economic recession = $133,312.50 / $500,000 = 26.67%

ROE under proposed structure:

  • no change in the economy = $168,270 / $350,000 = 48.08%
  • economic expansion = $239,370 / $350,000 = 68.39%
  • economic recession = $123,832.50 / $350,000 = 35.38%
You might be interested in
Give three reasons why food is processed.​
lubasha [3.4K]

To make it edible and digestible

To kill all germs in the food

To make chewing easy

3 0
2 years ago
If you stare at a red patch and then look at a red apple, will your experience of the redness of the apple be stronger or weaker
Mashutka [201]
<span>If you stare at a red patch and then look at a red apple, your experience of the redness of the apple will be  weaker. 
</span>The reason is because staring at red patch fatigues red portion of red-green channel. Hering’s opponent-process model predicts this situation. The theory was <span>first developed by Ewald </span>Hering<span>.</span>
3 0
3 years ago
Read 2 more answers
What are the portfolio weights for a portfolio that has 190 shares of Stock A that sell for $95 per share and 165 shares of Stoc
Vesnalui [34]

Answer:

Portfolio weight - Stock A =  46.473%

Portfolio weight - Stock B = 53.527%

Explanation:

The weightage of portfolio refers to the amount of investment in each stock in the portfolio expressed as a percentage of total investment in the portfolio. The weightage of portfolio can be calculated by as follows,

Portfolio weightage = Investment in Stock A / Total Investment in Portfolio  +

Investment in Stock B / Total Investment in Portfolio  +  ...  +  

Investment in Stock N / Total Investment in Portfolio

Total investment in portfolio = 190 * 95  +  165 * 126  = 38840

Investment in Stock A = 190 * 95 = 18050

Investment in Stock B = 165 * 126 = 20790

Portfolio weight - Stock A = 18050 / 38840 = 46.473%

Portfolio weight - Stock B = 20790 / 38840 =53.527%

4 0
3 years ago
J. M. Keyes put all his money in one stock, and the stock doubled in value in a matter of months. He did this three times in a r
adell [148]

Answer:

Lucky event

Explanation:

In the investments market a true measure of market efficiency is to get a track record of positive outcome from investors over time.

The lucky event problem occurs when an investor makes a profit on investment not because of how efficient a market is or by a logical procedure, but rather by chance.

In the given scenario Keyes put all his money in one stock that doubled in 3 months.

However this was not replicated among other investors who made similar vets on other stocks and lost.

This is an exams of lucky event problem in determining market efficiency.

5 0
3 years ago
Natalie operates on a pretty tight budget. She is a price-conscious shopper and usually buys store or generic brands to save mon
Llana [10]

Answer: The income effect

Explanation: The income effect refers to the effect on the purchasing power of the consumer when his or her income level changes.

In the given case, Natalie was price conscious  and used to buy lower priced goods with the objective of saving money. When her income rises she starts buying expensive goods as her purchasing power increases with increase in income.

Hence from the above we can conclude that the correct option is A.

7 0
3 years ago
Other questions:
  • Burns Company reported $1,161.405 million in net income in 2021. On January 1, 2021, the company had 409 million shares of commo
    11·1 answer
  • Selling insurance without a license without misappropriating premium funds is a ________.
    12·1 answer
  • An employee wore disposable gloves to form raw ground beef into patties. When she finished, she kept the gloves on while she sli
    11·1 answer
  • Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, G
    8·1 answer
  • A national political organization segmented the area of Jackson Hole, Teton County in Wyoming for its political marketing campai
    6·2 answers
  • A machine is available 10 hours a day. Each part takes 90 minutes to fabricate and 10 minutes to setup. 10% of the parts made ar
    6·1 answer
  • The technology involved in RFID (Radio Frequency Identification) has traditionally been used to ______.
    10·1 answer
  • If you borrow capital to start a business and the money is provided interest-free, then your cost of capital is zero.
    15·1 answer
  • Certify Completion Icon Tries remaining:3 Suppose that you and a friend are playing cards and you decide to make a friendly wage
    8·1 answer
  • for a monopolist: a. price equals average total cost. b. price is above marginal revenue. c. marginal revenue equals zero. d. ma
    13·2 answers
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!