Answer:
A. NoEquity $18.27million
NoDebt $22.75million
B. NoEquity 28.11%
NoDebt 35%
Explanation:
A. Calculation to determine the net income
NoEquity Inc., NoDebt Inc.,
Operating income $32.5 million $32.5 million
Less: Interest $6.4 million $0
($64m × 0.1)
Taxable income $ 26.10million $32.5 million
Less: Taxes (30%) ($7.83million) ($9.75million)
NET INCOME $18.27million $22.75million
Therefore The Net income for the two firms are :
NoEquity $18.27million
NoDebt $22.75million
B. Calculation to determine the Return on assets
NoEquity
Return on assets =$18.27million/$65 million
Return on assets =0.2811*100
Return on assets =28.11%
NoDebt
Return on assets = $22.75million/$65 million
Return on assets =0.35*100
Return on assets =35%
Therefore The return on assets for the two firm are:
NoEquity 28.11%
NoDebt 35%
