Last year Kruse Corp had $380,000 of assets (which is equal to its total invested capital), $403,000 of sales, $28,250 of net income, and a debt-to-total-capital ratio of 39%.The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets and total invested capital to $252,500. The firmfinances using only debt and common equity. Sales, costs, and net income would not be affected, and the firm would maintain the same capital structure (but with less totaldebt). By how much would the reduction in assets improve the ROE? Do not round your intermediate calculations.a. 5.05%b. 6.15%c. 7.63%d. 5.97%e. 6.28%

ROE is the return on equity and is one important measure of profitability of company and very…

ast year Kruse Corp had $380,000 of assets (which is equal to its total invested capital), $403,000 of sales, $28,250 of net income, an The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets and total inances using only debt and common equity. Sales, costs, and net income would not be affected, and the firm would maintain the same ebt). By how much would the reduction in assets improve the ROE? Do not round your intermediate calculations. O a. 5.05% O b. 6.15% O c. 7.63% O d. 5.97%

ast year Kruse Corp had $380,000 of assets (which is equal to its total invested capital), $403,000 of sales, $28,250 of net income, an The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets and total inances using only debt and common equity. Sales, costs, and net income would not be affected, and the firm would maintain the same ebt). By how much would the reduction in assets improve the ROE? Do not round your intermediate calculations. O a. 5.05% O b. 6.15% O c. 7.63% O d. 5.97%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Amcor Ltd is a paper packaging company that currently has a beta of 0.49,debt with a market value of $11.5 million and equity with a market value of $5.7 billion.Amcor is considering expanding into the manufacture of personal protective equipment,a project that is of similar risk to the activities of Ansell Ltd.Ansell's beta is 0.91,and it has debt of with a market value of $1.4 billion and equity with a market value of $2 million. The current cost debt for Amcor is 5% p.a. compounding semi-annually,the current yield on government bonds is 2% p.a. and the equity market risk premium is estimated to be 6% p.a. compounded annually.The tax rate is 30%. a.Calculate Amcor's cost of equity for this project. b.Calculate Amcor's WACC for the project.
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Do not provide solution in imge format. and also do not provide plagarised content otherwise i dislike. Consider a firm with an EBIT of $865,000. The firm finances its assets with $2,650,000 debt (costing 7.9 percent and is all tax deductible) and 550,000 shares of stock selling at $6.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 350,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $865,000. Calculate the change in the firm's EPS from this change in capital structure. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. EPS before EPS after Difference
Consider two firms – Alpha Co. and Omega Co. – that operate in the manufacturing of mountain bikes and have the same degree of operating leverage. Alpha Co. and Omega Co. have, respectively, no debt and 50 percent debt in their capital structure. Which of the following statements is most accurate? Compared to the Alpha Co., the Omega Co. has: a. the same sensitivity of net income to changes in operating income. b. a lower sensitivity of net income to changes in unit sales. c. the same sensitivity of operating income to changes in unit sales.
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Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $80,000. PP's current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. Refer to Exhibit 16.1. Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.4% and a new value of operations of $510,638. Assume PP raises $178,723 in new debt and purchases T-bills to hold until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase? A) $45.90 B) $48.12 C) $51.06 (D) $53.33 (E) $58.75
Appliances, Inc. has no debt outstanding, and its financial position is given by the following data: Assets (market value = book value) $5,000,000 EBIT $800,000 Cost of equity 12% Stock price $10 Shares outstanding 500,000 Tax rate 25% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 20% debt based on market values, its cost of equity will increase to 13% to reflect the increased risk. Bonds can be sold at a cost of 6%. Appliance, Inc. is a no-growth firm. Hence, all its earnings are paid out as dividends. Earnings are expected to be constant over time. As a creditor, you are concerned about the company’s ability to repay its debt and interest. What is the new times interest earned?
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Sara is trying to analyze Henley Company finances but realizes that she was missing the company's net profits after taxes for the current year. Find the company's net profits after tax.ROA = 2.5%Total asset turnover = 0.5COGS = $105,000Gross profit margin = 0.30
Roxy Broadcasting, Inc. is currently a low-levered firm with a debt-to-equity ratio of 2/7. The company wants to increase its leverage to 7/2 for debt to equity. If the current return on assets is 10% and the cost of debt is 8%, what are the current and the new costs of equity if Roxy operates in a world of no taxes?
Zorn Corporation is deciding whether to pursue a restricted or relaxed working capital investment policy. The firm's annual sales are expected to total $2,520,000, its fixed assets turnover ratio equals 4.0, and its debt and common equity are each 50% of total assets. EBIT is $150,000, the interest rate on the firm's debt is 10%, and the tax rate is 40%. If the company follows a restricted policy, its total assets turnover will be 2.5. Under a relaxed policy its total assets turnover will be 2.1. If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy? Do not round intermediate calculations. a. $19,200 b. $11,520 c. $9,600 d. $5,760 e. $4,800

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