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
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%

You might be interested in
Ajax Inc. is one of the customers of a well-known linen manufacturing company. Ajax has not ordered linen in some time, but when
Aleksandr-060686 [28]

Answer:

511

Explanation:

RFM analysis - recency, frequency, monetary

RFM analysis is used to analyze and rank customers according to their purchassing patterns.

RFM (recency, frequency, monetary) analysis is a behavior based technique used to segment customers by examining their transaction history such as

  • how recently a customer has purchased (recency)
  • how often they purchase (frequency)
  • how much the customer spends (monetary)

It is based on the marketing axiom that 80% of your business comes from 20% of your customers.

RFM helps to identify customers who are more likely to respond to promotions by segmenting them into various categories

<u>Solution:</u>

Ajax Inc. is one of the customers of a well-known linen manufacturing company. Ajax has not ordered linen in some time, but when it did order in the past it ordered frequently, and its orders were of the highest monetary value. Under the given circumstances, Ajax's RFM score is most likely <u>511</u>.

8 0
3 years ago
Which of the following is the most accurate statement regarding the federal budget?
hoa [83]
The Federal Reserve System controls the monetary policy in the United States. They influence short-term interest rates and also determine the size of the money supply. The Federal budget is very hard to balance and <span>has been a concern and is difficult to achieve. The President sends the budget to Congress who must approve it.
</span>
4 0
3 years ago
In a local​ market, the monthly price of internet access service decreases from ​$40 to ​$30​, and the total quantity of monthly
deff fn [24]

The answer is : The demand is elastic.

Elasticity =

[(80,000 - 180,000)/((80,000+180,000)/2)]/[($40 - $30)/(($40 + $30)/2)]|

[(-100,000/130,000)]/[(10/55)] = -.7692/.1818= -4.23

The answer is -4.23, however when considering own price elasticity of demand, we ignore the negative sign and look at the absolute value to determine whether it is elastic or inelastic.

5 0
3 years ago
During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2021,
Nana76 [90]

Answer:

$35,260

Explanation:

Calculation to Determine the proper amount of net income for 2021

Unadjusted net income $33,000

Adjustments:

a. Insurance expense overstated $2,800

[4,200-(4,200/3)]

b. Sales revenue overstated $(675)

c. Supplies expense overstated $645

d. Interest expense understated $(510)

(12%*17,000*3/12)

Adjusted net income $35,260

Therefore the proper amount of net income for 2021 will be $35,260

3 0
3 years ago
APR on a loan may be adjusted based on a borrower’s
horsena [70]

APR on a loan may be adjusted based on a borrower’s

credit history

8 0
3 years ago
Read 2 more answers
Other questions:
  • Assume a company pays out $100 in dividends in Year 1. What would the annual growth rate (rounded to the nearest 1%) for dividen
    13·1 answer
  • PortaCom manufactures notebook computers and related equipment. PortaCom's product design group developed a prototype for a new
    9·1 answer
  • Assessment of a potential supplier’s financial situation:
    11·1 answer
  • Financial crisesA) are major disruptions in financial markets that are characterized by sharp declines in asset prices and the f
    6·1 answer
  • Write about your last week ( over 50 words)​
    7·2 answers
  • Selected information from Jacklyn Hyde Corporation's accounting records and financial statements for 2021 is as follows ($ in mi
    5·1 answer
  • Ruth Lewis is looking to invest in a three-year bond that makes semi-annual coupon payments at a rate of 5.825 percent. If these
    10·1 answer
  • During August, 10,000 units were produced. The standard quantity of material allowed per unit was 10 pounds at a standard cost o
    12·1 answer
  • Which aspect is an essential feature of a joint venture between two companies that come together for global trade?
    9·1 answer
  • Suppose that a government that is skeptical of efforts to regulate prices charged by private companies is nevertheless concerned
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!