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fomenos
3 years ago
15

"Water and Power Co. is a small company and is considering a project that will require $650,000 in assets. The project will be f

inanced with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $145,000?"
Business
1 answer:
musickatia [10]3 years ago
7 0

Answer:

The answer is =16.7%

Explanation:

Earnings before interest and taxes(EBIT) = $145,000

Tax rate is 25%

Therefore, the applicable tax rate on the earnings is 100% - 25% = 75%

So the Net income is 0.75 x $145,000

Net income = $108,750

The project is financed by 100percent equity and the cost is $650,000.

ROE(Return on Equity) = net income/equity

$108,750/$650,000

=16.7%

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Answer:

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Cr Dividend Revenue          5,000

(to record dividend revenue from 10,00 Tolle's shares at $0.5 each)

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All the explanation is given at the end of each transaction. Further explanation as below:

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- The cost of share sold per share = ( Purchasing price x share purchase - Brokerage commission)/ share purchased = ( 30 x 10,000 + 100) / 10,000 = $30.01

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=> Gain on investment disposal = ( 33.975 - 30.01) x 4,000 = 15,860.

=> Cash receipt = 4,000 x 34 - 100 = $135,900.

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