CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
5th Edition
ISBN: 9781305661653
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 2, Problem 19PROB
Summary Introduction
EWD's 60% of assets are financed with common equity. Its current ratio is 5, total assets turnover is 4, current assets equal to $150,000, and sales are $1,800,000. Long-term liabilities and current liabilities to be calculated.
The total asset turnover ratio is the efficiency ratio which is used to measure how much sales is generated by using the firm's total assets.
Current ratio is one of the liquidity ratios which is used to measure the short-term ability of the firm to pay the firm's short-term obligations with its current assets.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Ohio Quarry Inc. has $10 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 13 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 18 percent. Round your answers to the questions below to two decimal places.
Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: %
20% debt ratio: %
40% debt ratio: %
Which capital structure yields the highest expected ROE?-Select-0 percent debt and 100 percent equity20 percent debt and 80 percent equity40 percent debt and 60 percent equityItem 4 yields the highest expected ROE.
Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 30 percent.0% debt ratio: %
20% debt ratio: %…
Ohio Quarry Inc. has $20 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 10 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 15 percent. Round your answers to the questions below to two decimal places.
Determine the rate of return on equity (ROE) under the three different capital structures (0, 20, and 40% debt ratios).0% debt ratio: %
20% debt ratio: %
40% debt ratio: %
Which capital structure yields the highest expected ROE? yields the highest expected ROE.
Determine the ROE under each of the three capital structures (0, 20, and 40% debt ratios) if expected EBIT decreases by 40 percent.0% debt ratio: %
20% debt ratio: %
40% debt ratio: %
Which capital structure yields the highest ROE calculated in part c? yields the highest expected ROE.…
Ohio Quarry Inc. has $10 million in assets. Its expected operating income (EBIT) is $4 million and its income tax rate is 40 percent. If Ohio Quarry finances 20 percent of its total assets with debt capital, the pretax cost of funds is 13 percent. If the company finances 40 percent of its total assets with debt capital, the pretax cost of funds is 18 percent. Round your answers to the questions below to two decimal places.
Determine the percentage change in ROE under each of the three capital structures (that is, debt ratios) as the result of a 30 percent decline in EBIT. Use the minus sign to enter a negative percentage change in ROE if necessary.0% debt ratio: %
20% debt ratio: %
40% debt ratio: %
Chapter 2 Solutions
CFIN (with Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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
- Lear Incorporated has $820,000 in current assets, $360,000 of which are considered permanent current assets. In addition, the firm has $620,000 invested in fixed assets. Lear wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 9 percent. The balance will be financed with short-term financing, which currently costs 5 percent. Lear’s earnings before interest and taxes are $220,000. Determine Lear’s earnings after taxes under this financing plan. The tax rate is 30 percent. As an alternative, Lear might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing and the balance with short-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $220,000. What will be Lear’s earnings after taxes? The tax rate is 30 percent.arrow_forwardYou are considering a stock investment in one of two firms (AllDebt, Inc., and AllEquity, Inc.), both of which operate in the same industry and have identical EBITDA of $15.2 million and operating income of $10.0 million. AllDebt, Inc., finances its $40 million in assets with $39 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Inc., finances its $40 million in assets with no debt and $40 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the income available to pay the asset—funders’ investment—(the debt holders and stockholders) and resulting return on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.) AllDebt. AllEquity Income available for asset funders. million. million Return on asset-funders' investment. %. %arrow_forwardLuxembourg Port Co. has assets of €100 million (including €10 million in cash) and debt of €20 million. If the company borrows an additional €10 million to repurchases €20 million of stock, what is the new debt-to-equity ratio?arrow_forward
- Take It All Away has a cost of equity of 11.14 percent, a pretax cost of debt of 5.34 percent, and a tax rate of 21 percent. The company's capital structure consists of 66 percent debt on a book value basis, but debt is 32 percent of the company's value on a market value basis. What is the company's WACC?arrow_forwardCamtek currently has assets of $25,000,000. Given the significant growth of the company's activities, this asset should reach $33,000,000 within a year if Camtek succeeds in obtaining the necessary financing. Currently, the company's capital structure is as follows (book values): Long-term debt $10,000,000 Preferred shares (150,000 shares) $5,000,000 Common shares $8,000,000 Profits not distributed $2,000,000 This capital structure (proportions of each source of financing) is considered optimal; the company does not foresee any significant change to this structure for the next few years. A dividend of $2 per share has just been paid to common shareholders of the company. This dividend was $2.50 7 years ago. Camtek common stock was split 2 for 1 2 years ago. It is estimated that for the next few years (until infinity) the growth of the ordinary dividend and earnings per share will be the same as the average of that of the last 7 years. Currently,…arrow_forwardThe excel Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of excel machinery is $25/share.How much dividend excel Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies.arrow_forward
- The Lawrence Company has a ratio of long term debt to long term debt plus equity of .39 and a current ratio of 1.7. Current liabilities are 950, sales are 6370, profit margin is 9.8 percent, and ROE is 20 percent. What is the amount of the firms net fixed assets?arrow_forwardBoricua Corp. has $19 million in fixed assets according to its balance sheet, but its value is $30 million according to its most recent appraisal. Boricua Corp. also has $12 million in current assets according to its balance sheet and according to its most recent appraisal their value is $20 million. The current obligations according to the balance sheet and the market value are $2 million as well as the long-term obligations whose value is $19 million. The market value of shareholders' equity or capital is: Select one: a. 50 b. 29 c. 10 d. 19arrow_forwardMaddux Corporation has EBIT of $725,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 11 percent and the corporate tax rate is 24 percent. The company also has a perpetual bond issue outstanding with a market value of $1.6 million. What is the value of the company? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) The CFO of the company informs the company president that the value of the company is $4.9 million. Is the CFO correct?arrow_forward
- Maddux Corporation has EBIT of $725,000 per year that is expected to continue in perpetuity. The unlevered cost of equity for the company is 11 percent and the corporate tax rate is 24 percent. The company also has a perpetual bond issue outstanding with a market value of $1.6 million. What is the value of the company?arrow_forwardIf Jefferson Inc. purchases a building that increases fixed assets by $27,588 and they did this with 40% debt. What is the dollar amount that total equity will increase by?arrow_forwardYou are considering a stock investment in one of two firms (NoEquity, Inc., and NoDebt, Inc.), both of which operate in the same industry and have identical EBITDA of $39.5 million and operating income of $14.5 million. NoEquity, Inc., finances its $50 million in assets with $49 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Inc., finances its $50 million in assets with no debt and $50 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the net income and return on assets—funders’ investments—for the two firms. (Enter your dollar answers in millions of dollars. Round "Net income" answers to 3 decimal places and "Return on assets" answers to 2 decimal places.) NoEquity. NoDebt Net income million million Return on assets % %arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Financial leverage explained; Author: The Finance story teller;https://www.youtube.com/watch?v=GESzfA9odgE;License: Standard YouTube License, CC-BY