Why is there a positive leverage from use of debt? How can we tell that?
Q: What is meant by the term financial leverage?
A: Borrowed Capital: The money which is borrowed by a company from outsiders for a specified period of…
Q: why an increase in cost of debt will increase cost of capital associated with business risk and…
A: The cost of capital is the minimal rate of return that a company must earn before it may generate…
Q: Why do noninvestment-grade bonds have much higher direct costs than investment-grade issues?
A: Bond: Bond is a kind of debt instrument typically issued by corporations, government organizations…
Q: What do you believe is the significance of a good capital structure? What is Degree of Operating…
A: Capital structure refers to company's debt and equity mix as a means for financing the operation…
Q: What is meant by positive financial leverage? What about negative financial leverage?
A: Leverage -It refers to the use of source of funds for which the firm has to pay a fixed cost.
Q: How does added debt potentially decrease the value of a firm?
A: Debt can be positive as well as negative, firms prefer to use debt in their capital structure to…
Q: Using more debt lowers profits and thus the ROA. Why doesn’t debt have the samenegative effect on…
A: Return on Assets (ROA): It is a ratio which states the relation between net income and total assets…
Q: Debt also can be an advantage. How can be a debt can be advantage?
A: Debt Financing: It is the money borrowed by the business from outside sources. This source of…
Q: It is better to use Free Cash Flow to Firm rather than Free Cash Flow to Equity when the leverage is…
A: The free cash flow is the amount of money remaining by adding the non cash expenses of the company.…
Q: What is credit enhancement, and what effect does it have on debt costs?
A: Credit enhancement represents the strategy that improves the business' credit risk profile. It helps…
Q: it better to finance a company thru debt or thru equity? Why? What are the downside and upside to…
A: A business can raise funds predominantly either by Issuing Equity, or Borrowings Loans, Issuing…
Q: Why is financial leverage is attractive
A: Introduction : In simple words, financial leverage refers to the process in which a company buys…
Q: Explain how behavioural finance is related to market anomalies
A: Behavioural finance is the study of the behaviour of investors in making investment decisions.…
Q: It is more provident that equity financing is more favored because of the ultimate risks associated…
A: Equity financing entails raising of funds through sale of equity shares while debt financing entails…
Q: How banks can improve their return on equity and what are its negative externalities.
A: RoE is ubiquitous in banks, serving as both an indicator of overall performance and a means of…
Q: What is securitization? What are its advantages to borrowers?What are its advantages to lenders?
A: Securitization is a financial process that takes an asset of some kind and turns it into a security,…
Q: Explain this statement: Using financial leverage has both good and bad effects.
A: financial leverage is the process of borrowing capital to make an investment, with the assurance…
Q: Define the term s financial leverage?
A: Financial leverage means buying the asset by taking the debt. The company always uses leverage…
Q: What is off balance sheet financing? Why do we care about it?
A: Financial statements can be defined as a summary of the financial performance of the business over…
Q: Evaluate the effect of gearing on cost of capital and firm value taking into consideration the…
A: The term “gearing” can be defined as the tool to gauge company’s financial leverage by emphasizing…
Q: Explain Financial Leverage?
A: Companies going for purchase of assets have three options for financing. They are equity, debt &…
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: What is positive and negative financial leverage? How are returns or losses magnified as the degree…
A: Leverage is a growth strategy in which companies or individuals use borrowed funds for increasing…
Q: What factors contribute to the risk of overusing financial leverage?
A: Financial leverage is the use of debt in the capital structure to acquire additional assets. Use of…
Q: What is financial leverage?
A: Capital Structure: It refers to the combination of debt and equity that constitutes the finances…
Q: what are the benefits/risks of financial leverage?
A: Financial leverage is a condition wherein a company raises funds through the issue of additional…
Q: Why is EBIT generally considered to be independent of financial leverage?Why might EBIT be…
A: Introduction: In finance, leverage is a general concept to combine gains and losses by some…
Q: Why is EBIT generally considered independent of financial leverage? Why might EBITactually be…
A: EBIT or Earnings Before Interest and Taxes measures all profits before removing interest and tax…
Q: What is a good capital structure? Are low debt ratios always favorable?
A: The capital structure of a corporation is the exact combination of debt and equity used to support…
Q: Why does the use of debt lower the profit margin and the ROA?
A: Company needs to raise the fund to have the capital which needs for the business for multiple…
Q: How does the equity method discourage the manipulation of net income by investors?
A: Equity method is used for accounting for investments by one company in another company when the…
Q: Debt capacity is a firm’s ability to borrow to increase firm value. True or False
A: For the purpose of carry on the activities of company, the funds are needed. It can be arranged by…
Q: Assume that the risk-free rate increases, but the market risk premium remains constant. What impact…
A: Risk free rate is the return which investors expect from an investment with zero risk. One such…
Q: Debt allows an economy to appear very large but debt also creates more ____ in an economy.…
A:
Q: WHY IS EQUITY MORE EXPENSIVE THAN DEBT?
A: Equity is owner's equity or shareholder's equity. It represents the value that would be returned to…
Q: Why do analysts need to consider different factors when evaluating a company’s ability to repay…
A: Short-term debt or current liabilities refers to the company's financial obligations to the…
Q: What happens to the costs of debt and equity when leverageincreases? Explain.
A: Introduction: The term leverage is nothing but using borrowed funds as a source of funding when the…
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…
Why is there a positive leverage from use of debt? How can we tell that?
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- Multiple-Step and Single-Step In coin Statements The following items were derived from Gold Companys December 31 adjusted trial balance: Additional data: 1. Screen thousand share of common stock have been outstanding the entire year. 2. The income tax rate is 30% on all items of income. Required: 1. Prepare a multiple-st income statement. 2. Prepare a single step income statement. 3. Next Level Discuss how Gold Companys income statement in Requirement I might be different if it used IFRSa. (1) Current year working capital. 1,090,000 Current position analysis The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years: Current Year Previous Year Current assets: Cash 391,000 300,000 Marketable securities 515,000 354,000 Accounts and notes receivable (net) 634,000 426,000 Inventories 368,000 222,000 Prepaid expenses 182,000 138,000 Total current assets 2,090,000 1,440,000 Current liabilities: Accounts and notes payable (short-term) 725,000 600,000 Accrued liabilities 275,000 300,000 Total current liabilities 1,000,000 900,000 a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place. b. What conclusions can be drawn from these data as to the companys ability to meet its currently maturing debts?RATIO ANALY SIS OF COMPARATI VE FIN ANCIAL STATE MENT S Refer to the financial statements in Problem 24-8A. REQUIRED Calculate the following ratios and amounts for 20-1 and 20-2 (round all calculations to two decimal places): (a) Return on assets (Total assets on January 1, 20-1, were 175,750.) (b) Return on common stockholders equity (Total common stockholders equity on January 1, 20-1, was 106,944.) (c) Earnings per share of common stock (The average numbers of shares outstanding were 8,400 shares in 20-1 and 9,200 in 20-2.) (d) Book value per share of common stock (e) Quick ratio (f) Current ratio (g) Working capital (h) Receivables turnover and average collection period (Net receivables on January 1, 20-1, were 39,800.) (i) Merchandise inventory turnover and average number of days to sell inventory (Merchandise inventory on January 1, 20-1, was 48,970.) (j) Debt-to-equity ratio (k) Asset turnover (Assets on January 1, 20-1, were 175,750.) (l) Times interest earned ratio (m) Profit margin ratio (n) Assets-to-equity ratio (o) Price-earnings ratio (The market price of the common stock was 100.00 and 85.00 on December 31, 20-2 and 20-1, respectively.)
- Single-step income Statement and balance sheet Selected accounts and related amounts for Kanpur Co. for the fiscal year ended June 30. 20Y7. arc presented in Problem 5-5B. Instructions 1.Prepare a single-step income statement in the format shown in Exhibit 13. 2.Prepare a statement of stockholders equity. Additional common stock of 7.500 was issued during the year ended June 30. 20Y7. 3.Prepare a balance sheet, assuming that the current portion of the note payable is 7,000. 4.Prepare closing entries as of June 30, 20Y7.Post closing balance debit credit Non current assets 1 414 000 Current assets 412 000 Ordinary share capital 1 300 000 Retained earnings 272 400 Non current liabilities 180 000 Current liabilities 74 000 1 826 400 1 826 400 Until June 20x2, 1 300 000 ordinary shares had been issued, for N$1 each. The following equity transaction took place during the year ended 30 June 20x3 On 1 July 20x2, the company issued 200 000 12% preference shares for N$1.25 each. Share issue costs of N$6 150 were incurred and paid. On 30 September 20x2 the company issued 300 000 ordinary shares for N$1.25 per share. Share issue costs of N$15 625 were incurred and paid. On 30 December 20x2 the directors authorized and declared a ordinary dividend of 50 cents per share. The profit for the period ended 30 June 20x3 amounted to N$112 800. On June 20x3 the directors authorized a capitalization of one ordinary share of N$ for every 8 held, The preference dividend was paid on…Question 3The following Trial Balance was extracted from the books of A.B.L Sdn Bhd asat 31 December 20X1:Trial Balance as at 31 December 20X1 Dr CrRM RM Capital – issued & fully paid:60,000 Ordinary shares 60,00020,000 non- redeemable Preference shares 20,000General reserves 14,000Balance of retained earnings 7,0005% Debentures 50,000Trade receivables and Trade payables 42,240 44,000Cash at bank 35,000Land and building at cost 100,000Plant and machinery at cost 50,000Inventories 31,000Cash in hand 1,000Accumulated depreciation, 1 January 20X1Land and building 20,000Plant and machinery 7,500Gross profit 145,000Administrative expenses 44,000Selling and distribution expenses 56,000Discounts 500 1,540Debenture interest 2,500Legal fees 1,200Directors’ fees 5,600369,040 369,040 Required:Prepare the Statement of Profit or Loss and an extract of the Statement ofChanges in Equity (showing the movements in retained earnings) for the yearended 31 December 20X1 and the Statement of Financial…
- Problem #1 The following balance sheet and income statement data is given: 31-Dec Yr 2021 Yr 2020 Cash $4,300 $3,700 Accounts receivable (net) 22,000 23,400 Inventories 10,000 7,000 Plant assets (net) 75,000 86,000 Total assets 111,300 120,100 Accounts payable 12,370 11,100 Bonds payable 70,000 70,000 Total liabilities 82,370 81,100 Common stock, $10 par 65,000 59,000 Paid-in capital 10,000 10,000 Retained earnings 24,300 20,600 Total stockholders’ equity 99,300 89,600 Net credit sales 100,000 Cost of goods sold 60,350 Gross profit 39,650 Net income 14,000 REQUIRED: Compute the following ratios for 2021. NOTE: Copy and paste the information below into the answer box first and then show your calculation steps for this problem to receive credits. (1) Accounts receivable turnover=____________________ (2) Inventory turnover=__________________ (3) Accounts payable…Orbit Limited Statement of Financial Position as at 31 December: 2022 2021 R R ASSETS Non-current assets 11 810 000 7 560 000 Property, plant and equipment 10 025 000 6 250 000 Investments 1 785 000 1 310 000 Current assets 4 190 000 4 690 000 Inventories 1 875 000 2 350 000 Accounts receivable 1 925 000 2 200 000 Cash 390 000 140 000 Total assets 16 000 000 12 250 000 EQUITY AND LIABILITIES Equity ? ? Ordinary share capital 5 480 000 3 680 000 Retained earnings ? ? Non-current liabilities 4 500 000 3 800 000 Loan (20% p.a.) 4 500 000 3 800 000 Current liabilities 2 300 000 1 500 000 Accounts payable 2 300 000 1 500 000 Total equity and liabilities 16 000 000 12 250 000 Statement of Comprehensive Income for the year ended 31 December: 2022 2021 R R Sales 10 800 000 7 150 000 Cost of sales (6 000 000) (3 650 000) Gross profit 4 800 000 3 500 000 Operating expenses (1 800 000) (1 200 000) Depreciation 580 000 200 000…Problem 1 (Adapted)The shareholders’ equity of Yelan Company showed the following account balances on December 31, 2018:Share capital, P100 5,000,000Share Premium 1,000,000Retained earnings 2,000,000Revaluation surplus 800,000 Compute the book value per share on December 31, 2018.
- Advanced Accounting: Chap 1 HomeworkPip’s Paw Patrol had the following account Balances on Dec 31, 2021:BOOK Value FMVCurrent Assets $225,000 $250,000Land $320,000 $350,000Building $450,000 $650,000Accum Dep ($50,000)Equipment $195,000 $50,000Accum Dep ($100,000)Current Liabilities ($75,000) ($75,000)Bonds Payable ($200,000) ($300,000)Common Stock ($65,000)Paid in Capital ($700,000)Pip’s industry anticipates an 8% return on investments of P/E/P before accumulated depreciation andPip generated a $120,000 profit in 2021. Pip would like to be paid for 4 years of excess earnings.REQUIRED: a Record the purchase of the Pip Paw Patrol on the books of the BUYER, assume they issued100,000 shares of $2 par value common stock and paid $40,000 in legal and accounting fees and$50,000 in stock issuance costs to their broker.bRecord the sale of the company on the books of the sellThe total assets and liabilities of Robot Company at January 1 and December 31, 2022are presented here.January 1 December 31Assets $76,000 $112,000Liabilities 26,000 28,800 Instructions: Assume additional stock was issued for $62,000 and dividends of $15,600 were paid during the year. Compute net income. Assume additional stock was issued for $6,000, and net income was $51,000. Compute dividends paid.QUESTION 4 The balances following balances are extracted from the book of MCCV Berhad at 1 January 2019. RMIssued and paid up ordinary shares capital (2,000,000 units) 2,000,000Retained earnings 900,000 The following transactions occurred during the year ended 31 December 2019: i) Profit for the year ended 31 December 2019 was RM1,500,400.ii) On 20 February, the company made a rights issue of 2 ordinary share for every 10 existingordinary shares held at RM1.50 per share. All shareholders exercised their rightiii) On 1 May 2019, the company made an additional issuance of 500,000 ordinary shares atRM1.25 per share. Total applications received were 600,000 ordinary shares. 500,000ordinary shares were allotted and the excess applicants’…