11. Problem 4.14 (Return on Equity)eBookProblem Walk-ThroughannualPacific Packaging's ROE last year was only 5%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result ininterest charges of $200,000. The firm has no plans to use preferred stock, and total assets equal total invested capital. Management projects an EBIT of $352,000 on sales of$4,000,000, and it expects to have a total assets turnover ratio of 2.1. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's returnon equity? Do not round intermediate calculations. Round your answer to two decimal places.

Return on equity is one of important profitability ratio and shows how much is profit earned by the…

Answered: Problem 4.14 (Return on Equity) eBook…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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WACC David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 7%, and the company's tax rate is 25%. Ortiz's CFO has calculated the company's WACC as 9.3%. What is the company's cost of equity capital? Round your answer to the nearest whole number. %
Various capital structures Charter Enterprises currently has $1.7 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60%, and 90%. (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value? Calculate the capital structure below: (Round to the nearest dollar.) Equity Debt Ratio 10% $ Debt $ C
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eBook Problem Walk-Through Pacific Packaging's ROE last year was only 5%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $360,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $672,000 on sales of $8,000,000, and it expects to have a total assets turnover ratio of 2.3. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places. ____%
eBook The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 18%, its before-tax cost of debt is 12%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,161. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 51 Inventories 360 Long-term debt 1,110 Plant and equipment, net 2,160 Common equity 1,709 Total assets $2,880 Total liabilities and equity $2,880 Calculate Paulson's WACC using market-value weights. Do not round intermediate calculations. Round your answer to two decimal places. %
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American capital has $375000 off assets and uses only common equity capital Sales for the last year were $420000 and stockholders recently voted in a new management team that has promised to lower cost and increase the company’s return on equity Holding everything else constant what profit margin would the firm need in order to achieve an ROE of 12.1%
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eBook Problem Walk-Through The Stewart Company has $1,170,500 in current assets and $444,790 in current liabilities. Its initial inventory level is $280,920, and it will raise funds as additional notes payable and use them to increase inventory. How much can its short-term debt (notes payable) increase without pushing its current ratio below 2.07 Round your answer to the nearest dollar.
eBook Problem Walk-Through Banyan Co.'s common stock currently sells for $46.25 per share. The growth rate is a constant 4%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 50%, and the expected return on equity (ROE) is 8.0%. New stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places. 8.25 %
None
Flotation Costs Lucas Corp. has a debt-equity ratio of .65. The company is considering a new plant that will cost $51 million to build. When the company issues new equity, it incurs a flotation cost of 7 percent. The flotation cost on new debt is 2.7 percent. What is the initial cost of the plant if the company raises all equity externally? What if it typically uses 60 percent retained earnings? What if all equity investment is financed through retained earnings?

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