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3 years ago

Aurillo Equipment Company (AEC) projected that its ROE for next year would be just 6

Business

1 answer:

Drupady [299]3 years ago

8 0

Answer:

Aurillo Equipment Company (AEC)

If AEC refinances its high interest bonds, its projected new ROE will be:

= 15.6%

Explanation:

a) Data and Calculations:

Total debt = $200,000

Debt ratio = 80%

Total assets = $250,000 ($200,000/80%)

Equity = $50,000 ($250,000 - $200,000)

Old interest rate on old debt = 14%

New interest rate on refinanced debt = 10%

Total interest = $20,000 ($200,000 * 10%)

Sales revenue = $300,000

EBIT = $33,000

Interest 20,000

Before tax $13,000

Tax = 5,200 (40% of $13,000)

Net income $7,800

ROE = Net income/Equity * 100

= ($7,800/$50,000 * 100)

= 15.6%

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4 years ago

Turnbull Co. is considering a project that requires an initial investment of $1,708,000. The firm will raise the $1,708,000 in c

Soloha48 [4]

Answer:

The WACC for this project is 10.605%

Explanation:

The WACC or the weighted average cost of capital is the weighted average return that the company is expected to pay its capital providers.The WACC is calculated by multiplying the cost of each component by their respective weights in the capital structure. The WACC is calculated using the following formula,

WACC = wD * (1-tax) * rD + wP * rP + wE * rE

Where,

wD, wP and wE represents the weight of debt, preferred stock and common equity respectively as a proportion of total capital.
rD, rP and rE is the cost of debt, preferred stock and equity respectively.
The (1-tax) is used in debt component to calculate the after tax cost of debt

WACC = 750000/1708000 * (1-0.25) * 0.096 + 78000/1708000 * 0.107 + 880000/1708000 * 0.135

WACC = 0.10605 or 10.605%

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4 years ago

During its first year of operations, Mack's Plumbing Supply Co. had sales of $3,250,000, wrote off $27,800 of accounts as uncoll

Lunna [17]

Answer:

$593,000

Explanation:

Net income before debt in second year:

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= 600,000 + 34,000

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Net income = Net income before debt in second year - Bad debts expense

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3 years ago

A firm has issued cumulative preferred stock with a $100 par value and a 10 percent annual dividend. For the past three years, t

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Answer:

$30/share

Explanation:

Calculation to determine the amount the preferred stockholders must be paid

First step is to calculate per year dividend using this formula

Per year dividend = Stock value × Dividend payment rate

Let plug in the formula

Per year dividend = $100 × 10%

Per year dividend = $10

Second step is to calculate the Total unpaid dividend using this formula

Total unpaid dividend for 2 years = Per year dividend × 2 year

Let plug in the formula

Total unpaid dividend for 2 years = $10× 2years

Total unpaid dividend for 2 years = $20

Now let calculate the Cumulative Preferred Dividend

Using this formula

Cumulative Preferred Dividend = Current Year Dividend + Total unpaid dividend for 2 years

Let plug in the formula

Cumulative Preferred Dividend = $10 + $20

Cumulative Preferred Dividend = $30

Therefore At the end of the current year, the preferred stockholders must be paid $30/share prior to paying the common stockholders.

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4 years ago