Question

In: Finance

ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is...

ABC has accumulated $23 million in assets, operating income of $1.75 million. The tax rate is 35%. It finances 25%, 50% and 75% of its assets with debt at costs of 9%,10& and 12% respectively. Discuss your results. a. Determine the ROE under three models. b. Which capital structure is best and why? c. What if EBIT increases by 10%, which capital structure is best?

Solutions

Expert Solution


jeff jeffy answered 8 months ago
Next > < Previous

Related Solutions

ABC Division currently has an operating profit of $3.75 million on average operating assets of $21...
ABC Division currently has an operating profit of $3.75 million on average operating assets of $21 million. ABC is considering investing in two projects:                                                                         Project #1                    Project #2 Required Investment                                      $1,250,000                  $ 750,000 Annual Revenue or Cost Savings                   $   200,000                  $175,000 ABC’s division manager receives a bonus each year which is tied to the ROI of ABC. Corporate headquarters has made $2.5 million in capital available to ABC. Any unused funds would be invested at the corporate level at...
15) ABC Inc. has a net income of $1,000. The tax rate is 21% and the...
15) ABC Inc. has a net income of $1,000. The tax rate is 21% and the firm made an interest payment of $250 during the year. The depreciation for the year was $200. During the year, the net fixed assets increased by $500. Cash increased by $50, inventories decreased by $75, receivables increased by $100, payables declined by $125, and the short term debt for the company increased by 150. The firm saw its common stock and paid in surplus...
A DI has assets of $30 million consisting of $7 million in cash and $23 million...
A DI has assets of $30 million consisting of $7 million in cash and $23 million in loans. It has core deposits of $20 million. It also has $5 million in subordinated debt and $5 million in equity. Increases in interest rates are expected to result in a net drain of $1 million in core deposits over the year. a-1. The average cost of deposits is 5 percent and the average yield on loans is 8 percent. The DI decides...
A company has an operating income (EBIT) of $575 with a marginal tax rate of 35%....
A company has an operating income (EBIT) of $575 with a marginal tax rate of 35%. The net CAPEX was $150 with a $75 change in working capital. Over the next 5 years, they anticipate an average reinvestment rate of 25% with a return on capital of 20%. During this high-growth period, they estimate a beta of 0.90, a risk-free rate of 1% and risk premium of 4%. Pre-tax debt cost is 6.5%, with a 25% debt ratio. After year...
Thomson Trucking has $23 billion in assets, and its tax rate is 35%. Its basic earning...
Thomson Trucking has $23 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 20%, and its return on assets (ROA) is 4%. What is its times-interest-earned (TIE) ratio? Round your answer to two decimal places.
NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed...
NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed entirely with equity. Equity is worth $30 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of state 0.20 0.55 0.25...
NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed...
NoNuns Cos. has a 25 percent tax rate and has $302.40 million in assets, currently financed entirely with equity. Equity is worth $30 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of state 0.20 0.55 0.25...
GTB, Inc. has a 21 percent tax rate and has $100 million in assets, currently financed...
GTB, Inc. has a 21 percent tax rate and has $100 million in assets, currently financed entirely with equity. Equity is worth $7 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Pessimistic Optimistic Probability of state 0.45 0.55 Expected EBIT...
Barton Industries has operating income for the year of $3,400,000 and a 39% tax rate. Its...
Barton Industries has operating income for the year of $3,400,000 and a 39% tax rate. Its total invested capital is $20,000,000 and its after-tax percentage cost of capital is 7%. What is the firm's EVA?
Assume a firm has $45 million in operating profit. The firm’s tax rate is 40%. What...
Assume a firm has $45 million in operating profit. The firm’s tax rate is 40%. What is the tax shield of the firm’s $38 million in debt that charges a 10% interest rate? Which of the following is TRUE regarding Company ABC given the following information? Current Assets = $250 Fixed Assets =$70 Current Liabilities = $110 Long term Debt = $90 Sales = $330 Net Income = $60 Shareholders’ Equity = $320 Current Ratio = 1.30 Asset turnover= 2.75...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT