Digital Press and Book Publishers Ltd had the following balance sheets as at Dec. 31, 2012 DIGITAL ($'000) BOOK PUB. LTD ($'000) 100,000 80,000 100,000 120,000 200,000 200,000 Current Assets Fixed Assets (Net) Total Assets Current Liabilities LT Debt Common Stock Retained Earnings Total Lia & Equity 20,000 80,000 50,000 50,000 200,000 EBIT for both firms = $30M and tax rate is 40% 80,000 20,000 50,000 50,000 200,000 What is the ROE for each firm if interest rate on current liabilities is 10% and the rate on LT debt is 13% If ST rate rises to 20% and LT rate rises to 16% but the rate on existing LT debt remains unchanged. What would the ROE for Digital Press and Book Publishers Ltd be. Which firm is in a riskier position? Why
Digital Press and Book Publishers Ltd had the following balance sheets as at Dec. 31, 2012 DIGITAL ($'000) BOOK PUB. LTD ($'000) 100,000 80,000 100,000 120,000 200,000 200,000 Current Assets Fixed Assets (Net) Total Assets Current Liabilities LT Debt Common Stock Retained Earnings Total Lia & Equity 20,000 80,000 50,000 50,000 200,000 EBIT for both firms = $30M and tax rate is 40% 80,000 20,000 50,000 50,000 200,000 What is the ROE for each firm if interest rate on current liabilities is 10% and the rate on LT debt is 13% If ST rate rises to 20% and LT rate rises to 16% but the rate on existing LT debt remains unchanged. What would the ROE for Digital Press and Book Publishers Ltd be. Which firm is in a riskier position? Why
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Digital Press and Book Publishers Ltd had the following balance sheets as at Dec. 31, 2012
DIGITAL ($'000) BOOK PUB. LTD ($'000)
100,000
80,000
120,000
200,000
Current Assets
Fixed Assets (Net)
Total Assets
100,000
200,000
Current Liabilities
LT Debt
Common Stock
Retained Earnings
Total Lia & Equity
EBIT for both firms = $30M and tax rate is 40%
20,000
80,000
50,000
50,000
200,000
80,000
20,000
50,000
50,000
200,000
What is the ROE for each firm if interest rate on current liabilities is 10% and the rate on LT debt is 13%
Which firm is in a riskier position? Why
If ST rate rises to 20% and LT rate rises to 16% but the rate on existing LT debt remains unchanged. What would the ROE for Digital Press and
Book Publishers Ltd be.
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