Frontier Industries and Metallurgy Ltd had the following balance sheets at December 31, 2017Frontier Industries200,000,000_100,000,000300,000,000Metallurgy Ltd120,000,000180.000,000300,000,000Current AssetsFixed AssetsTotal Assets50,000,000100,000,000100,000,00050.000,000300,000,000Current LiabilitiesLong-term DebtCommon StockRetained EarningsTotal Liabilities & Equity140,000,00060,000,00050,000,00050.000,000300,000,000Earnings before interest and taxes for Frontier were $40 million, and for Metallurgy Ltd theywere $45 million. The tax rate is 40% for both firms, and they pay an interest rate on currentliabilities of 10% and 13% on long-term debt.(i) What is the net income for each company?(ii) What is the return on equity for each?(iii) What explains the two companies' different ROE despite their similar earnings?

Information Provided: EBIT (Frontier) = $40 million EBIT (Metallurgy) = $45 million Tax rate = 40%…

Answered: (i) What is the net income for each…

(i) What is the net income for each company? (ii) What is the return on equity for each? (iii) What explains the two companies' different ROE despite their similar earnings?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter9: Metric-analysis Of Financial Statements

Section: Chapter Questions

Problem 9.3.1P: Effect of transactions on current position analysis Data pertaining to the current position of...

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