a. What is the NPV of Richmond's investment? b. What is Richmond's share price today? Suppose Richmond borrows the $40 million instead and thus there are only 3.5 million shares outstanding. The firm will pay interest only on this loan each year, and maintain an outstanding balance of $40 million on the loan. Suppose that Richmond's corporate tax rate is 30% and expected free cash flows are still $11 million each year. c. What is Richmond's share price today if the investment is financed with debt? Now suppose that with leverage, Richmond's expected free cash flows will decline to $10 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for Richmond's future free cash flows is still 7%.

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Financial Ratios

A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.

Return on Equity

The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.