Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $23 million in invested capital, has $3.45 million of EBIT, and is in the 25% federal-plus-state tax bracket. Both firms are small with average sales of $25 million or less during the past 3 years, so both are exempt from the interest deduction limitation. Firm HL, however, has a debt-to-capital ratio of 60% and pays 13% interest on its debt, whereas LL has a 30% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure. a. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places. ROIC for firm LL: ROIC for firm HL: b. Calculate the return on equity (ROE) for each firm. Round your answers to two decimal places. ROE for firm LL: ROE for firm HL: % % c. Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt-to-capital ratio from 30% to 60% even though that would increase LL's interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places. %

Q: Explain consistency concept.

A: Consistency: Consistency principle emphasizes that companies should adhere to same accounting…

Q: What does the process of providing this information to external users is called? Describe about it…

A: Financial Reporting System:   It refers to monitoring the financial resources of an organization as…

Q: could you list the name of the recommended strategy as long call, write call, long put, or write…

A: Option strategies help to protect from any potential risk to be resulted from the movement of the…

Q: Describe the benefits of benchmarking.

A: Benchmarking is a way to measure something in corporate environment, it is also used to promote…

Q: What are POS Systems? Enumerate their advantages versus manual data collection systems.

A: Introduction: A point of sale (POS) system is used to monitor sales and receive consumer payments.…

Q: Describe the analytical model for ethical decisions.

A: It is a process of assessing and picking among choices in a way steady with moral standards. In…

Q: Can you show steps on how you got the answers?

A: Workings:

Q: Summarizing data to understand what has happened is what type of analytics?   Multiple Choice…

A: Data analytics is one of the important aspect used by companies to make the data useful and…

Q: If you believe IRR is the most reliable tool, please provide some additional data to support that…

A: IRR can be defined as the discount rate at which the present value of all future cash flows (or…

Q: Explain the process followed and the result

A: The process followed here is the calculation of the Economic Order Quantity (EOQ), which is a…

Q: Explain the importance of the review and evaluation process.

A: Introduction The financial plan monitoring for workplace review and evaluation is found essential to…

Q: ccording to the text explain briefly when Sens

A: Sensitivity analysis is determine how is the imapct of one variable on the values of other varaible…

Q: Explain briefly how a sensitivity analysis is done and what the analysis is designedto show.

A: The question is based on the concept of a sensitivity analysis, which is a very common analysis used…

Q: What is the meaning behind Recognition Criteria? How does it help determine when an event should be…

A: Accounting ideas, usually referred to as accounting assumptions or accounting principles, are the…

Q: Compare and contrast a between-groups design and a within-subjects design. What information about…

A: The objective of this question is to understand the differences and similarities between a…

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.