What is return on equity If a bank has a leverage ratio of 0.1 and a return oncapital of 2%, what is its return on equity?A) 0.2%B) 2.1%C) 5%D) 20%

The return on equity (ROE) can be calculated using the following formula: ROE=Return on…

Answered: If a bank has a leverage ratio of 0.1…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 5MC: What happens to ROE for Firm U and Firm L if EBIT falls to $1,600? What happens if EBIT falls to...

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Suppose an investment bank is buying $50 million in long-term mortgage-backed securities and finances the investment by borrowing 70% and paying for the other 30% out of equity. What is the bank's leverage ratio? a) 0.30 b) 0.13 c) 3/7 d) 3
What happens to ROE for Firm U and Firm L if EBIT falls to $1,600? What happens if EBIT falls to $1,200? What is the after-tax cost of debt? What does this imply about the impact of leverage on risk and return?
need the answer with explanation
If a bank has the following ratios, it can pay up to of its earnings as dividends. Tier 1 leverage = 4.7% Tier 1 common equity risk-based = 7.2% %3D Tier 1 risk-based 8.3% Total capital risk-based = 11%
Can you please answer this part c follow up question: c) Suppose the initial £90,000 is raised by borrowing at the risk-free interest rateinstead of issuing equity. What are the cash flows to equity and debt holders, andwhat is the initial value of the levered equity according to Modigliani and Miller’sPropositions? Is the company’s cost of equity the same as before? Overall, can thecompany raise the same amount of capital as before? Explain your reasoning.
A firm has a debt-to-equity ratio of 1.20. If it had no debt, its cost of equity would be 15%. Its cost of debt is 10%. What is its cost of equity if there are no taxes or other imperfections? A. 10% B. 15% C. 18% D. 21% E. None of these.
Suppose TRF = 5%, M = 12%, and b; = 0.75, what is the cost of equity? 5.00% 10.25% 12.00% 6.00%
Estimating Cost of Equity Capital Assume that a company’s market beta equals 0.8, the risk-free rate is 5%, and the market return equals 8%. Compute the company’s cost of equity capital. Round answer to one decimal place (ex: 0.0245 = 2.5%) Answer%
Where do we generally find optimal level of debt? A. where the tax shield is maximized B. the amount of debt such that the YTM is 5.5% or less C. where debt equals equity D. whatever will yield a FICO sore of 700 or better E. consistent with a low investment grade debt rating
WHICH OF THE FOLLOWING STATEMENTS IS MOST CORRECT? A. IF A FIRM'S EXPECTED BASIC EARNING POWER (BEP) IS CONSTANT FOR ALL ITS ASSETS AND EXCEES INTEREST RATE ON ITS DEBT, THEN ADDING ASSETS FINANCING THEM WITH DEBT WILL RAISE THE FIRM'S EXPECTED RATE OF RETURN ON COMMON EQUITY (ROE)? B. THE HIGHER ITS TAX RATE, THE LOWER A FIRM'S BEP RATIO WILL BE, OTHER THINGS HELD CONSTANT. C. THE HIGHER THE INTEREST RATE ON ITS DEBT, THE LOWER THE FIRM'S BEP RATIO WILL BE, OTHER THINGS HELD CONSTANT. D. THE HIGHER ITS DEBT RATIO, THE LOWER THE FIRM'S BEP RATIO WILL BE, OTHER THINGS HELD CONSTANT. E. STATEMENT A IS FALSE, BUT B, C AND D ARE ALL TRUE.
Which of the following is the better option for an average firm? A. A debt ratio = 30% and a timed interest earned 15. B. A debt ratio = 80% and a timed interest earned = 8. C. A debt ratio 60% and a timed interest earned = 2. D. A debt ratio = 10% and a timed interest earned = 7. - =
Given the following calculate the Cost of Equity. Beta Equity Risk Premium Pre-tax Yield on Debt Return on the Bond Market Return on the Stock Market Risk Free Rate Tax Weight of Debt in the Total Capital Structure Weight of Equity in the Total Capital Structure 1.5 5.5% 6.0% 4.5% 8.0% 2.5% 25.0% 25.0% 75.0%

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If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity? A) 0.2% B) 2.1% C) 5% D) 20%