explain the difference between ROA and ROE a. The net Interest margin for each one is different. b. Because the issues of G-Bond c. Because of financial leverage d. There are two different Net incomes for these two ratios

explain the difference between ROA and ROE a. The net Interest margin for each one is different. b. Because the issues of G-Bond c. Because of financial leverage d. There are two different Net incomes for these two ratios

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter11: Venture Capital Valuation Methods

Section: Chapter Questions

Problem 7DQ

See similar textbooks

Related questions

Q: The cost of debt is equal to one minus the marginal tax rate multiplied by the average coupon rate…

A: The mix of equity and debt is a business organization is known as the capital structure of the…

Q: You have learnt three approaches that can be used in determining the discount rate in equity…

A: Equity valuation refers to the method of estimating the fair value of the firm’s stock It shows…

Q: You now need to calculate the cost of debt for Harvey Norman. Go to www.westpac.com.au and find the…

A: Harvey Norman Holdings WACC % As of today (2020-11-17), Harvey Norman Holdings's weighted average…

Q: What is the difference between the ratios that use the market price and the other ratios? Why might…

A: Ratio analysis mistreatment money statements includes accounting, securities market, and management…

Q: Which statement is true? * General borrowings may earn investment income deductible against general…

A: Business may borrow funds for the purpose of business. These borrowings can be general borrowings or…

Q: Derive the inverse relationship between Price and Yield in debt markets using a property-based…

A: The question is based on the concept of calculating the value of debt and fixed-income security with…

Q: The difference between gini coefficient of market income and gini coefficient of disposable income…

A: The difference between gini coefficient of market income and gini coefficient of disposable income…

Q: For a project I have due, I need help determining which of these ratios is best to determine…

A: Ratios are the financial tool which is used to evaluate the firm’s performance and growth by…

Q: Which of the following statements is true about the present value factors? The present value factor…

A: Present value interest factor is used to determine the present value of series of future annuities.…

Q: Contrast the modern construct for FISIM with a measure that sub- tracts deposits from the financial…

A: Financial Intermediation Services Indirectly Measured (FISIM) In general, only a small part of…

Q: ere are two concepts in respect of working capital Select one: a. None of the options b. Cost of…

A: Working capital represents the variance between all the current assets and current liabilities of a…

Q: Which of the following is the most widely discussed and used method of defining the discount rate?…

A: Discount rate is a rate at which future cash flows can be discounted to their present values and…

Q: Which of the following statements is correct? Multiple Choice All of the statements are…

A: Option d. An increase in the market risk premium is likely to increase the weighted average cost of…

Q: If Company A uses more debt than Company B and both companies have identical operations in terms of…

A: If A company utilizes more debt than that of B company then, interest will be charged on the debt…

Q: If a firm's marginal tax rate is increased, this means that other things held constant, lower the…

A: After tax cost of debt = Before tax cost of debt * (1-tax rate)

Q: Golden Gate Construction Associates, a real estate developer and building contractor in San…

A: EVA as a residual income measure of financial performance is simply the operating profit after tax…

Q: Consider each of the following situations independently of each other. For each of the situations…

A: Current ratio increases from one period to the next An increase in the current ratio may be due to…

Q: Golden Gate Construction Associates, a real estate developer and building contractor in San…

A: Weighted Average Cost of Capital

Q: Which of the following statements is true about the present value factors? a. The present value…

A: Option c>> The present value factor is also known as the discount factor. Is correct Present…

Q: Explain how do analyst use ratios to analyse a firm's leverage? Which ratio convey more important…

A: Ratio analysis is used by the companies as a tool for evaluation of various aspect of operations…

Q: The cost of debt is normally higher than the cost of equity. Is it a good idea to always carry a…

A: Solution: False, The cost of debt is normally cheaper than the cost of equity.

Q: When estimating cost of debt, the coupon rate is used as the cost of debt. Group of answer choices…

A: Cost of debt is a significant factor for any organisation to assess. The same is also used to…

Q: The discount rate used in a net present value analysis is the ________. A. rate of interest…

A: Net present value is calculated by the deducting the present value of cash outflows from the present…

Q: GAMA Corp. and FAMA Corp. have the same tax rate, sales, total assets, and basic earning power. Both…

A: 1. Gama Corp. and Fama Corp. has same Sales, same tax rate, same total assets and same basic…

Q: What refers to the cost of borrowing money or the amount earned by a unit principal per unit time?…

A: Solution Rate of Interest The rate of interest is that the quantity a lender charges for the use of…

Q: Income taxes have the effect of A. increasing the cost of debt for a firm. B. decreasing the cost of…

A: Income tax is a compulsory payment made to government on income earned during financial year. Income…

Q: WHICH OF THE FOLLOWING STATEMENTS IS MOST CORRECT? A. IF A FIRM'S EXPECTED BASIC EARNING POWER…

A: Basic Earning Power (BEP) RatioIt represents that the how much a firm’s assets able to generate…

Q: key benefits associated with refunding debt are the reduction in the firm's debt ratio and the…

A: The debt ratio is ratio that dictates that how much company has taken the debt out of its total…

Q: True/False. The optimal amount of debt produces the highest weighted average cost of capital. Group…

A: Solution- The optimal amount of the debt produced the highest weighted averagecost of capital.-False

Q: If we divide users of ratios into short-term lenders, long-term lenders, and stockholders, in which…

Q: When estimating the amount and cost of debt, should you aggregate the various line items into larger…

A: The effective interest rate that a corporation pays on its debts, such as bonds and loans, is…

Q: The two major components of the interest rate that cause rates to vary across different investment…

A: Maturity risk premium: Maturity risk premium is considering as the amount of additional return you…

Q: Suppose you, a stock analyst, are performing a ratio analysis and comparing a discount merchandiser…

A: Answer: Return on equity (ROE) among experienced investors is a closely watched figure. This is an…

Q: Golden Gate Construction Associates, a real estate developer and building contractor in San…

A: Economic Value Added: In the financial world, economic value added (EVA) is a measure of a company's…

Q: Which of the following theories can be assessed using data that exists at one specific point in…

A: Purchasing power parity: Purchasing power parity (PPP) is a concept which means that exchange rates…

Q: ly based on tax rate structure may be less than optimal.

A: Equity: This is one of the tax system evaluationcriteria pertaining to the concept of equal or…

Q: Which of the following are the factors for the Fama-French model? 1. The excess market…

A: Fama fench model is advance method of capital assets price model in which there are more factors are…

Q: Suppose you a stock analyst are performing a ratio analysis and comparing a discount merchdiser with…

A: The profitability of firm can be measured by computing Return on equity (ROE). It determines the…

Q: The WACC is a weighted average of the costs of debt, preferred stock, and common equity. How should…

A: When assessing the efficacy of a corporate financing strategy, analysts use a calculation called…

Q: should we expect the flotation costs for debt to be significantly lower than those for equity

A: Flotation costs are the expenses incurred by a firm when it issues fresh stock. Flotation costs…

Q: Explain why a long term creditor should be interested in liquidity ratios. Include some examples or

A: Introduction : In simple word, the liquidity of a business refers to the amount of cash or easily…

Q: If you were comparing the costs of loans from different lenders, could you use their APRs to…

A: Annual percentage returns (APR): It indicates the rate of interest on the loan of investment. In…

Q: What is the difference between yield to maturity on outstanding debt and coupon rate? Which is a…

A: Honor code: “Since you have asked multiple questions, we will solve the first question for you. If…

Question

Please explain the difference between ROA and ROE

a. The net Interest margin for each one is different.

b. Because the issues of G-Bond

c. Because of financial leverage

d. There are two different Net incomes for these two ratios

		a
		b
		c
		d

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which of the following are the factors for the Fama-French model? 1. The excess market return, a size factor, and a debt. 2. a. The excess market return, a size factor, and a book-to-market factor. 3. b. The excess market return, a debt factor, and a book-to-market factor. 4. d. A debt factor, a size factor, and a book-to-market factor. 5. e. The excess market return, an industrial production factor, and a book-to-market factor.
b) Explain the reasons why do investors prefer high or low pay out ratio?
This theory assumes that the driver of interest rates are the savings and investment flows. A• Interest rate theory B• Market theory C• Biased expectation theory D• Market Segmentation theory
Which of the following statements is correct? Multiple Choice All of the statements are correct. The weighted average cost of capital is calculated on a before-tax basis. The weights of debt and equity should be based on the balance sheet because this is the most accurate assessment of the valuation. An increase in the market risk premium is likely to increase the weighted average cost of capital.
Which of the following is true of risk-return trade off? A) Risk can be measured on the basis of variability of return. B) Risk and return are inversely proportional to each other. C) T-bills are more riskier than equity due to imbalances in government policies. D) Riskier investments tend to have lower returns.
Describe each of the following methods for estimating the cost of equity: (a) the CAPM, (b) DCF,and (c) the bond-yield-plus-risk-premium.Where can you obtain inputs for each of thesemethods, and how accurate are estimates basedon each procedure? Can you state categoricallythat one method is better than the others, or doesthe “best” method depend on the circumstances?
Which of the following statements is true? A. The percentage decrease in value when the yield-to-maturity (YTM) increases by a given amount is smaller than the increase in value when the yield-to-maturity (YTM) decreases by the same amount. B. Ratio analysis expands GAP analysis to focus on the sensitivity of bank profits across different interest rate environments. C. The repurchase price is smaller than the selling price and accounts for the interest charged by the buyer, who is lending funds to the seller with the security as collateral. D. The issuers or the firms issuing the bonds are rated on their junior unsecured debt.
The required rate of return on equity is the most appropriate discount rate to use when applying a ______ valuation model. A. FCFE B. DDM C. FCEF or DDM D. P/E E. FCEF
What is the difference between the ratios that use the market price and the other ratios? Why might you get a different picture about firm performance from the different ratio types? Describe a specific scenario where this might occur.
Use the following information to answer this question. In your answers, ignore the negative sign, if any. Yield on Bond A Yield on Bond B Yield on Bond C 5.50% 6.50% 3.50% a) What is the yield spread between bonds A and B (in basis points)? b) What is the relative yield spread between bonds B and C? Bond C is your basis. c) What is the yield ratio between A and C? Bond C is your basis.
Comparing the extent of long-term debt to equity is an example of __________. Multiple Choice Pivottables Vertical analysis Horizontal analysis Ratio analysis
4. Explain or illustrate before-tax cost of debt and after-tax cost of debt. 5. What are the relationships between: a) interest rate and cost of debt; b) default risk and cost of debt; and c) bond rates and interest rates? 6. What is the difference between yield to maturity on outstanding debt and coupon rate? Which is a better measure of cost of debt between the two? 7. How is COST OF preferred equity computed?