Current Proposed Assets $10,000 $18,000 Debt $- $8,000 Equity $10,000 $10,000 Debt/Equity 0 0.8 Interest Rate n/a 7% Shares Outstanding 500 500 Share Price $20 $20 A. Recession Expected Expansion EBIT $500 $1,000 $1,500 Interest 0 0 0 Net Income $500 $1,000 $1,500 Assets 10000 10000 10000 Equity 10000 10000 10000 Shares Outstanding 500 500 500 EPS $1 $2 $3 ROA $0.05 $0.10 $0.15 ROE $0.05 $0.10 $0.15 (b) If the company adds the proposed amount of debt and EBIT is expected to expand proportionally, fill out the table in (a) after the debt is issued.
Current Proposed Assets $10,000 $18,000 Debt $- $8,000 Equity $10,000 $10,000 Debt/Equity 0 0.8 Interest Rate n/a 7% Shares Outstanding 500 500 Share Price $20 $20 A. Recession Expected Expansion EBIT $500 $1,000 $1,500 Interest 0 0 0 Net Income $500 $1,000 $1,500 Assets 10000 10000 10000 Equity 10000 10000 10000 Shares Outstanding 500 500 500 EPS $1 $2 $3 ROA $0.05 $0.10 $0.15 ROE $0.05 $0.10 $0.15 (b) If the company adds the proposed amount of debt and EBIT is expected to expand proportionally, fill out the table in (a) after the debt is issued.
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
Related questions
Question
| Current | Proposed | ||
| Assets | $10,000 | $18,000 | |
| Debt | $- | $8,000 | |
| Equity | $10,000 | $10,000 | |
| Debt/Equity | 0 | 0.8 | |
| Interest Rate | n/a | 7% | |
| Shares Outstanding | 500 | 500 | |
| Share Price | $20 | $20 | |
| A. | |||
| Recession | Expected | Expansion | |
| EBIT | $500 | $1,000 | $1,500 |
| Interest | 0 | 0 | 0 |
| Net Income | $500 | $1,000 | $1,500 |
| Assets | 10000 | 10000 | 10000 |
| Equity | 10000 | 10000 | 10000 |
| Shares Outstanding | 500 | 500 | 500 |
| EPS | $1 | $2 | $3 |
| $0.05 | $0.10 | $0.15 | |
| $0.05 | $0.10 | $0.15 |
(b) If the company adds the proposed amount of debt and EBIT is expected to expand proportionally, fill out the table in (a) after the debt is issued.
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