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Elodia [21]
3 years ago
9

Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt. HD has more debt and pays

a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs?Applicable to Both Firms Firm HD Firm LDAssets $200: EBIT $40: Debt Ratio: 50% 30%Interest Rate: 12% 10%Tax Rate 35%:
Business
1 answer:
Inga [223]3 years ago
6 0

Answer:

Firms HD has higher ROE than firm LD.

In details, LD's ROE = 15.79%; HD's ROE = 18.20%. So the difference between LD's ROE and HD's ROE is (2.41%) with LD has lower ratio.

Explanation:

*For firm HD:

Value of debt = 200 * 50% = 100; Value of equity = 200 - 100 = 100.  

Interest expenses = 100 * 12% = $12 => EBT = 40 -12 = $28

Net income = EBT*(1 - tax rate) = 28 * (1-35%) = $18.2

ROE = net income / equity = 18.2 / 100 = 18.2% .

*For firm LD:

Value of debt = 200 * 30% = 60; Value of equity = 200 - 60 = 140.

Interest expenses = 60 * 10% = $6 => EBT = 40 -6 = $34

Net income = EBT*(1 - tax rate)  = 34 * (1-35%) = $22.1

ROE = net income / equity = 22.1 / 140 = 15.79%

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4 0
2 years ago
Examine the equal opportunity laws of another country, not the United States. Are the laws in other countries as much a concern
ira [324]

Answer:

The equal opportunity laws of another country, not the United States is discussed below in details.

Explanation:

An equal opportunity system is a certificate that declares what measures a company takes to eliminate and stop discrimination in the workplace.

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The prime legislation is the Equality Act 2010, which condemns discrimination in passage to education, government services, private services, and goods, or assumptions in addition to employment.

5 0
3 years ago
What is known as the act of giving "mental connection to a given task" or unit of information
disa [49]

Answer:

The correct answer is letter "B": attention.

Explanation:

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7 0
3 years ago
Jupiter Explorers has $5,600 in sales. The profit margin is 3 percent. There are 4,000 shares of stock outstanding, with a price
Irina18 [472]

Answer:

Price-earning ratio is 28.57 .

Explanation:

Price earning is a ratio widely used by common stock holder in stock market. The ratio is used to measures share price in relation to earning per share. The ratio tells us years require to recover amount spend on acquisition of share.

Detail calculation is given below.

Sales                      $ 5,600  -A

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6 0
3 years ago
A preferred share of Coquihalla Corporation will pay a dividend of $8 in the upcoming year and every year thereafter; that is, d
ki77a [65]

Answer:

Intrinsic value is $114.30

Explanation:

Given:

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There is no growth in dividends.

Calculate price of preferred share using DDM as shown below:

Price of preferred share = Dividend paid ÷ Required rate of return

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6 0
3 years ago
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