net income 24K Interest expense 5,000 Tax rate 25% Notes payable 27K Long-term debt 75K. Common equity 250K The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC? ROE = net income / common equity ROIC (return on invested capital) = EBIT(1-Tax) / total invested capital ROE = 24,000 / 250,000 ROE = .096 EBIT= sales revenue - operating costs Is my ROE right?
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
net income 24K
Interest expense 5,000
Tax rate 25%
Notes payable 27K
Long-term debt 75K.
Common equity 250K
The firm finances with only debt and common equity, so it has no
ROE = net income / common equity
ROIC (
ROE = 24,000 / 250,000
ROE = .096
EBIT= sales revenue - operating costs
Is my ROE right?
I do not know how to find the EBIT with the information provided. Please help, thank you!
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