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riadik2000 [5.3K]
2 years ago
10

Pacific Packaging's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-ca

pital ratio of 55%, which will result in annual interest charges of $470,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $780,000 on sales of $10,000,000, and it expects to have a total assets turnover ratio of 2.8. Under these conditions, the tax rate will be 35%. If the changes are made, what will be the company's return on equity
Business
1 answer:
Natalka [10]2 years ago
6 0

Answer: 12.53%

Explanation:

EBIT = $780,000

Interest = $470,000

EBT = EBIT - Interest

= $780,000 - $470,000

= $310,000

Net Income = EBT - Tax

= $310,000 - (35% × $310,000)

= $310,000 - (0.35 × $310,000)

= $310,000 - $108,500

= $201,500

Total assets turnover ratio = 2.8

Total assets = $10,000,000/2.8

= 3,571,429

Debt ratio = 55% = 0.55

Debt/Total asset = 0.55

Debt/3,571,429 = 0.55

Debt = 0.55 × 3571429

= 1,964,286.4

Equity = 0.45 × 3571429

= $1607143.5

Return on equity = Net income/Equity

= $201,500/$1,607,143.5

= 0.1253

= 12.53%

The company's return on equity will be 12.53%.

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Answer:

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2 years ago
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Answer: Barry must include $6,000 in gross income from discharge of indebtedness

Explanation:

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In this case, Barry will have to include the $6,000 he stole in gross income from discharge of indebtedness. The gross income has to do with the sum of the wages, profits, salaries, rents, interest payments, and every other earnings, before the deductions of taxes or other deductions. Since Barry stole the money and.he.has been forgiven, the $6,000 has to be included in the gross income from discharge of indebtedness.

7 0
3 years ago
Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 p
Helga [31]

Answer:

7%

Explanation:

nominal interest rate = real interest rate + expected inflation rate

nominal interest rate = 5% + 2% = 7%

Usually the nominal interest rate has four major components:

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3 years ago
Match the term with what most needs to be clarified within the following examples.
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Intention is a mental state that represents a commitment to carrying out an action or actions in the future. Intention involves mental activities such as planning and forethought.

Definition  

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5 0
3 years ago
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Colt1911 [192]

Answer:

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Explanation:

The computation is shown below:

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= $64,000

For building:

= Construction cost of new building (fully completed) + Architects’ fees

= $350,000 + $8,000

=$358,000

8 0
3 years ago
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