You are given the following information concerning a firm: Assets required for operation: $5,900,000 Revenues: $8,300,00
Posted: Wed Jul 06, 2022 6:44 pm
You are given the following information concerning a firm:Assets required for operation: $5,900,000Revenues: $8,300,000Operating expenses: $7,650,000Income tax rate: 40%.
Management faces three possible combinations of financing:
100% equity financing
25% debt financing with a 8% interest rate
50% debt financing with a 8% interest rate
What is the net income for each combination of debt and equityfinancing? Round your answers to the nearest dollar.
What is the return on equity for each combination of debt andequity financing? Round your answers to one decimal place.
If the interest rate had been 16 percent instead of 8 percent,what would be the return on equity for each combination of debt andequity financing? Round your answers to one decimal place.
What is the implication of the use of financial leverage wheninterest rates change?
The use of financial leverage is likelyto -Select-increasedecreaseItem 10 the return to thecommon stockholders if the rate of interest is low. If the rate ofinterest exceeds (after adjusting for taxes) the return earned onthe borrowed funds, the return to the common stockholder is likelyto -Select-increasedecreaseItem 11 by the use offinancial leverage.
Management faces three possible combinations of financing:
100% equity financing
25% debt financing with a 8% interest rate
50% debt financing with a 8% interest rate
What is the net income for each combination of debt and equityfinancing? Round your answers to the nearest dollar.
What is the return on equity for each combination of debt andequity financing? Round your answers to one decimal place.
If the interest rate had been 16 percent instead of 8 percent,what would be the return on equity for each combination of debt andequity financing? Round your answers to one decimal place.
What is the implication of the use of financial leverage wheninterest rates change?
The use of financial leverage is likelyto -Select-increasedecreaseItem 10 the return to thecommon stockholders if the rate of interest is low. If the rate ofinterest exceeds (after adjusting for taxes) the return earned onthe borrowed funds, the return to the common stockholder is likelyto -Select-increasedecreaseItem 11 by the use offinancial leverage.