Home Demo reports the following: Total liabilities = $38,633 million and Total assets = $42,966 million. (a) Compute Home Demo’s debt ratio. (b) Assuming Lows Hardware (a competitor) has a debt ratio of 60%, which company has higher risk from financial leverage?

Home Demo reports the following: Total liabilities = $38,633 million and Total assets = $42,966 million. (a) Compute Home Demo’s debt ratio. (b) Assuming Lows Hardware (a competitor) has a debt ratio of 60%, which company has higher risk from financial leverage?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Portneuf Industries has a debt-equity ratio of 1.5. Its WACC is 8.4%, and its cost of debt is 5.9%.…

A: We are given the following data :Debt-equity ratio : 1.5WACC : 8.4%Cost of debt : 5.9%Tax rate :…

Q: Which one of the following statements is correct? Multiple Choice O O O O O If the total debt ratio…

A: Financial ratios serve as valuable tools for understanding a company's financial position,…

Q: Sandhill, Inc., a manufacturer of electrical supplies, has an ROE of 23.1 percent, a profit margin…

A: Equity Multiplier is ratio that show leverage of an entity. It is computed by dividing total assets…

Q: If Bulldogs’ current liabilities are P1,300,000, the firm’s A. Acid-test ratio will be constant if…

A: Liquidity ratios are accounting metrics used to assess the ability of the business to meet its short…

Q: Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52…

A: WACC = (Cost of equity x Weight of equity) + (Cost of debt x (1-tax rate) x Weight of debt)Weight of…

Q: After researching the competitors of EJH Enterprises, you determine that most comparable firms have…

A: Here, Value of Equity = EV - Debt + Cash EV = EV/EBITDA * EBITDA As per EV/EBITDA, Price of share =…

Q: Suppose a company has a days sales outstanding (DSO) that is considerably higher than itsindustry…

A: DSO tells about the days in which a firm will receive cash from its debtors for the sales made.

Q: Company A's simple EPS is $1 and diluted EPS is $.50. Company B's simple EPS is $1.5 but his diluted…

A: EPS & Diluted EPS: These are used to measure the profitability of any company. EPS indicates how…

Q: Jack Corporation has a profit margin of 9.70 percent, total asset turnover of 1.50, an ROF of 18.62…

A: ROE=18.62Profit margin=9.70Assets turnover=1.50How much is debt-equity ratio.

Q: mat weights should it use for its WACC calculation? Assets $1,030 Debt Equity Liabilities & Equity $…

A: Answer :Market value of debt = 500 Market value of equity = 530*1.4= 742 Weight of debt = 500 / (500…

Q: Aurelia industries has a debt to asset ratio of 0.71. The equity multiplier is:

A: The ratio that shows the portion of the assets that are financed by equity is term as the equity…

Q: If a company decides to increase its ratio of total debt / total assets from 30% to 50% as a means…

A: ROE that is return on equity is the amount of return earned on the equity of the entity. It is the…

Q: 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…

A: We will find the ratio of equity/total assets, which measures the percentage equity allocation of…

Q: Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been…

A: The Capital Asset Pricing Model (CAPM) is a financial model used to determine the expected return on…

Q: Henderson's Hardware has an ROA of 11%, a 7% profit margin, and an ROE of 18%. A). What is its…

A: Total assets turnover Return on assets = Net profit / Assets turnover So, Assets turnover = Return…

Q: Want answer

A: Step 1: GivenDept ratio = 15 % = 0.15ROE = 13 % = 0.13ROA = ? Step 2: Formula usedDebt ratio = Total…

Q: Percent financed with debt (wd) Percent financed with equity (wc) Debt-to-equity ratio (D/S)…

A: Cost of capital:The cost of capital refers to the amount of money that a company must pay to finance…

Q: Based on the table below, Berwyck Industries' credit risk is most likely Total Debt/Total Capital…

A: In all given parameters, higher the cash flow to debt, ROC and EBITDA coverage ratio, lower the…

Q: Suppose a firm's financial statements indicate the following financial ratio values: X1 = 15%, X2 =…

A: Altman’s Z-Score Model was developed by Edward Altman as a measure of the financial stability of…

Q: Jack Corp. has a profit margin of 3.5 percent, total asset turnover of 2.9, and ROE of 18.58…

A: Given information : Profit margin 0.035 Total asset turnover 2.9 Return on equity…

Q: After researching the competitors of EJH Enterprises, you determine that most comparable firms have…

A: given, EPS=1.9EBITDA =$295 millioncash = $29 milliondebt = $44 millionoutstanding shares = 105…

Q: Instructions: Assume the following data for two firms (U = unlevered firm) and (L = levered firm).…

A: Leverage means borrowing money for increasing investment. Leverage is used to enhance the overall…

Q: The target company has sales of $2 million, net income of $1 million, and cash flows to equity of…

A: We need to use P/E multiple valuation formula below for calculation of valuation P/E multiple…

Q: How much is the cost of equity using the bond plus risk premium?

A: In the Bond plus Risk Premium Method, We take the Return on Company's Bond and add a premium for the…

Q: consider a company with ROE of 14.5% and a profit margin of 6.5%. if the total asset turnover is 1.8…

A: Debt equity ratio is a leverage ratio. It gives relative measure of debt to equity. Here Dupont…

Q: Trout and the market data of Salmon for the weights in the weighted average cost of capital: If the…

A: Given Data: Book valueDebt 7896109Equity4003759Cost of Debt = 10.3%Cost of Equity = 14.38%

Q: assumptions are necessary for AFN equation to work? 1) The ratios A0/S and LO/S, the profit margin,…

A: Additional Fund Need or also known as External financing can be calculated using the below…

Q: Assume that your firm has a return on assets of 14.7%, sales of $16,625,000, total assets of…

A: Here, Return on Assets14.70%Sales $ 1,66,25,000.00Total Assets $ 47,50,000.00Return on…

Q: Jackson Corporation has a profit margin of 9 percent, total asset turnover of equity ratio? Note: Do…

A: Profit margin = 9%Total asset turnover = 1.11Return on Equity (ROE) = 14.35%

Q: FINA's business risk (Ru) is 9% in the industry. The debt-to-equity ratio is 0.4. The cost of debt…

A: MM Proposition II refers to the theory that the cost of equity is considered to be directly…

Q: Henderson's Hardware has an ROA of 14%, a 6% profit margin, and an ROE of 19%. What is its total…

A: The objective of the question is to calculate the total assets turnover and the equity multiplier…

Q: Which of the following statements is TRUE? a. According to the DuPont identity, all else held…

A: The statement which is true is, Option A. According to Dupont identity, ROE = ( NI / Sales) * (…

Q: Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95…

Q: A comparable firm (ie, same industry and similar operations as our firm) has an equity bela of 1.3…

A: The objective of the question is to calculate the asset beta for our firm based on the information…

Q: Jackson Corporation has a profit margin of 11 percent, total asset turnover of 1.09, and ROE of…

A: Profit margin = 11%Total asset turnover = 1.09Return on Equity (ROE) = 14.37%

Q: Andyco, Inc., has the following balance sheet, WACC calculation? and an equity market-to-book ratio…

A: WACC is also known as Weighted Average Cost of Capital. It includes the cost of debt, cost of Equity…

Q: Need answer

A: Reference:Tamplin, T. (2023i, November 28). Debt Ratio | Definition, Components, Formula, Types,…

Q: firm’s debt is priced at par, so the market value of its debt equals its book value. Since dollars…

A: Accounting ratios which are regarded as the financial ratios are those ratios which compare the line…

Q: Assume that your company is trying to determine its optimal capital structure, which consists only…

A: Here, Particulars Values Cost of capital 11.00% Risk-free rate 5.00% Market risk premium…

Q: If Roten Rooters, Inc., has an equity multiplier of 1.58, total asset turnover of 1.80, and a profit…

A: Equity multiplier = 1.58Total asset turnover = 1.80Profit margin = 6.8 %

Q: XYZ Corp. has a debt to equity ratio of 0.5, an equity beta of 1.5, and its debt is risk-free. What…

A: In finance, the beta (β) of an investment indicates whether the investment is more or less volatile…

Q: Jack Corp. has a profit margin of 4.0 percent, total asset turnover of 2.1, and ROE of 16.42…

A: Return on equity = Profit margin * Total asset turnover ratio * Equity multiplier 16.42% = 4%*2.1*…

Q: If we know that a firm has a net profit margin of 4.3%, total asset turnover of 0.77, and a…

A: DuPont equation is used to determine ROE by decomposing ROE into profit margin, assets turnover and…

Q: The calculation of WACC involves calculating the weighted average of the required rates of return on…

A: WACC stands for "Weighted Average Cost of Capital." WACC is a financial metric that represents the…

Q: ive typing answer with explanation and conclusion Fama's Llamas has a weighted average cost of…

A: Weighted average cost of capital is total cost of financing the capital of the company. It includes…

Q: The conglomerate H has 2 divisions: A and B, representing 20.0% and 80.0% of the market value of H.…

A: WACC is weighted average cost of capital and is the weighted cost of equity and weighted cost of the…

Q: answer the question, "What is Joe's Pool Room, Inc's. Debt to Ed is a level 3 question. Total Asset…

A: Here we are provided with 4 financial ratios and using them we have to find the debt to equity…

Q: Suppose Microsoft has no debt and a WACC of 9.3 %. The average debt-to-value ratio for the software…

A: Unlevered cost of equity = 9.3%Average debt-to-value ratio = 6.7%Cost of debt = 6.4%

Question

Home Demo reports the following: Total liabilities = $38,633 million and Total assets = $42,966 million.

(a) Compute Home Demo’s debt ratio.
(b) Assuming Lows Hardware (a competitor) has a debt ratio of 60%, which company has higher risk from financial leverage?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1 Introduction

VIEW

Step 2 Working Note

VIEW

Step 3 Final Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Purple Panda Products Inc. has a total asset turnover ratio of 3.50x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On Its balance sheet and income statement, respectively, it reported total debt of $2.50 million on which It pays a 7% interest rate. To analyze a company's financial leverage situation, you need to measure the firm's debt management ratios. Based on the preceding Information, what are the values for Purple Panda's debt management ratios? Ratio Debt ratio Times-interest-earned ratio Value
Henderson's Hardware has an ROA of 15%, a 4.5% profit margin, and an ROE of 25%. What is its total assets turnover? Do not round intermediate calculations. Round your answer to two decimal places. What is its equity multiplier? Do not round intermediate calculations. Round your answer to two decimal places.
Red Fire has a Debt/Equity Ratio of .15, and Equity Multiplier of 1.15, a return on sales of 6.4, and an asset turnover of 1.3. What is its ROE?
For fiscal year 2021, Costco Wholesale Corporation ( COST) had a net profit margin of 2.60%, asset turnover of 3.24, and a book equity multiplier of 3.28. a. Use this data to compute Costco's ROE using the DuPont Identity. b. If Costco's managers wanted to increase its ROE by 1.10 percentage points, how much higher would their new asset turnover need to be? c. If Costco's net profit margin fell by 1.10 percentage points, by how much would their asset turnover need to increase to maintain their ROE? a. Use this data to compute Costco's ROE using the DuPont Identity. Costco's ROE is %. (Round to two decimal places.) If Costco's net profit margin fell by 1.05 percentage points, by how much would their asset turnover need to increase to maintain their ROE?
Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.8. Assuming the market value of debt equals its book value, what weights should it use for its WACC calculation? Assets $1,090 Liabilities & Equity Debt $460 Equity $630 The equity weight for the WACC calculation is __ % ? (Round to two decimal places.)
CoffeeCarts has a cost of equity of 15.1%, has an effective cost of debt of 3.8%, and is financed 69% with equity and 31% with debt. What is this firm's WACC? CoffeeCarts's WACC is __ % ? (Round to one decimal place.)
glenboro fire prevention corp has a profit margin of 7.70% total asset turn over of 1.90 and roe of 19.17%. what is this firm debt equity ratio?
Company has return on assets 12.4% and debt-equity ratio is 0.25. What is ROE? Select one: a.35.43% b.9.18% c.9.3% d.15.5%
Example The following data were assembled for General Stores Corporation: Equity (Market Risk) Premium: 4.9% Size Premium: 1.8% Value Premium: 3.0% Current Risk-Free Rate: 3.5% Market Beta: 1.05 Size Beta: -0.315 Value Beta: -0.224 Using the data above, estimate General Stores' cost of equity using the Fama- French Model.
M3
An insurance company’s projected loss ratio is 79.53 percent, and its loss adjustment expense ratio is 7.51 percent. It estimates that commission payments and dividends to policyholders will add another 13.96 percent. What is the minimum yield on investments required in order to maintain a positive operating ratio? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
Copmany A. has $2,491,100 in current assets and $859,000 in current liabilities. The company's managers want to increase the firm's inventory, which will be financed using short-term debt. How much can the firm increase its inventory without its current ratio falling below 2.2 (assuming all other current assets and current liabilities remain constant)?