Firm A and B have total debt ratios of 45% and 35% and ROA of 10% and 15%. Which firm has a greater ROE? A Firm A with ROE of 0.23 B) Firm B with ROE of 0.23 C) Firm A with ROE of 0.16 D) Firm B with ROE of 0.16
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- firm with a debt ratio of 0.75, will have an equity multiplier of ____. a. 0.25 b. 4.00 c. 0.75 d. 1.00Which one of the following statements is correct? Multiple Choice If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. The debt-equity ratio can be computed as 1 plus the equity multiplier. An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity. An increase in the depreciation expense will not affect the cash coverage ratio. 1Q.3. Firm A has a Return on Equity (ROE) equal to 24%, while firm B has an ROE of 15% during the same year. Both firms have a total debt ratio (Debt/total Assets) equal to 0.8. Firm A has an asset turnover ratio of 0.9, while firm B has an asset turnover ratio equal to 0.4. Which firm is better and why? ****
- What is the cost of equity for a firm where the required return on assets is 15.71%, the cost of debt is 6.92%, and the target debt/equity ratio is 1.19? Ignore taxes. O A) 19.05%You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (rE) = 18.55% Cost of debt (rD) = 7.85% Expected market premium (rM –rF) = 8.35% Risk-free rate (rF) = 5.95% Inflation = 0% Corporate tax rate (TC) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio? c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)Evans Technology has the following capital structure. Debt Common equity The aftertax cost of debt is 8.50 percent, and the cost of common equity (in the form of retained earnings) is 15.50 percent. a. What is the firm's weighted average cost of capital? Note: Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places. 48% 60 Debt Common equity Weighted average cost of capital Weighted Cost % % An outside consultant has suggested that because debt is cheaper than equity, the firm should switch to a capital structure that is 50 percent debt and 50 percent equity. Under this new and more debt-oriented arrangement, the aftertax cost of debt is 9.50 percent, and the cost of common equity (in the form of retained earnings) is 17.50 percent. b. Recalculate the firm's weighted average cost of canital
- Company A has a ROA of 8% and a ROE of 12 % . Company B has a ROA of 7% and an ROE of 15%. What does this tell us about the relative levels of debt financing between these two companies? Which company's approach is better?Find the firm’s Cost of equity, given only the following information about the firm: the firm’s cost of debt is 5%, and the historical equity risk premium is 6%.Calculate the cost of equity with the CAPM Calculate the cost od debt based on what the company is currently paying for its debt - Beta of the industry = 1.16 - Equity Risk Premium = 6.97% - Risk-free rate = 3.77% - Objective capital structure of the industry = 13.24%
- A firm has a debt-equity ratio of .52, a pretax cost of debt of 6.5 percent, and a required return on assets of 12 percent. Ignoring taxes, what is the cost of equity? Multiple Choice 12.86 percent 14.36 percent 14.86 percent 20.36 percent 12.00 percentRaskin LLC has a debt-equity ratio of 1.38. What is the equity multiplier?Company X is competing with company Y. These are their ratios: x y Debt Ratio = .437 Debt Ratio = .599 Debt Equity Ratio = .453 Debt Equity Ratio = .965 Interest Earned = 15.854 Interest Earned = 5.67 Based on Long-Term Debt paying ability, are any of them doing well? which company is doing better?