The following information available from Petra+ Corporation:ROATax rateTotal assets (include only $2 million financed by debts(12%) and $4million owners' equityManagement of Petra Co. wants to expand its operations with additional $4 million. It has two alt-First alternative: issue $2 million bonds (12 %) and the others by issue ordinary shares.. Second alternative: issue $4 million bonds (12%).Assume ROA remains unchanged. Then answer the following question (1-3):1. ROCE before expansion, is:2. ROCE if use fist alternative, is:3. ROCE if use second alternative, is:O9%30%$6 millionsO

The ROCE for a company implies a profitability measure that uses the after tax operating income and…

Answered: The following information available…

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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Give typing answer with explanation and conclusion The management of Tarantulagoodies is considering a reduction in the corporation’s debt ratio. The following information is available: Debt: $10,000,000, kd=7.5%, tax-rate=30% Common Stock: $23,000,000, b=1.2, RF=3.5%, E(RM)=10%. The issuance of $5,000,000 in common stock and repurchase of debt in that same amount is expected to result in the reduction in kd to7%. The impact of the action on the cost of equity is to be determined. Should management pursue the change in debt ratio? Why/why not?
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Prime Properties Berhad uses the following four sources of capital in their company's operations; No Sources of Capital Amount Cost model 1 Ordinary stock RM300 Million 10.0% 2 Priority share RM200 Million 14.0% 3 Bond RM400 Million 7.0% (before tax) 4 Retained earnings RM100 Million 8.0% If a corporate tax rate of 28 per cent per annum is imposed on this company, what is the weighted average cost of capital (WACC) for the company?
Edwards Construction currently has debt outstanding with a market value of $116,000 and a cost of 12 percent. The company has EBIT of $13,920 that is expected to continue in perpetuity. Assume there are no taxes. a-1. What is the value of the company's equity? (Do not round intermediate calculations. Leave no cell blank - be certain to enter "0" wherever required.) a- What is the debt-to-value ratio? (Do not round intermediate calculations and round 2. your answer to the nearest whole number, e.g., 32.) b. What are the equity value and debt-to-value ratio if the company's growth rate is 5 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) c. What are the equity value and debt-to-value ratio if the company's growth rate is 8 percent? (Do not round intermediate calculations and round your "Debt-to- value" answer to 3 decimal places, e.g., 32.161.) Answer is complete but not entirely correct. a-1. Value of equity…
As equal instalment payments are made on a long-term loan, both the interest portion and the principal portion decrease O the interest and principal portions remain the same. O the interest portion increases and the principal portion decreases. O the interest portion decreases and the principal portion increases. QUESTION 20 For last year, Bonita Corporation reported net income of $710,000, and paid $174,000 in dividends for the 250,000 preferred shares issued. The weighted average of common shares was 1,675,000 shares. Bonita's basic earnings per share was $0.42 $0.28 O $0.32 O $0.10
Riverton Stores is all-equity financed and has net sales of $217,800, taxable income of $32,600, a return on assets of 11.5 percent, a tax rate of 21 percent, and total debt of $63,700. What are the values for the three components of the DuPont identity? Question 7 options: 11.82 percent; .9725; .7156 11.82 percent; .9725; 1.3975 10.24 percent; 1.0282; 1.3975 11.82 percent; 1.0282; 1.3975 10.24 percent; 1.0282; .7156
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MM with Corporate Taxes Companies U and L are identical in every respect except that U is unlevered while L has $8 million of 5% bonds outstanding. Assume: (1) All of the MM assumptions are met. (2) Both firms are subject to a 25% federal-plus-state corporate tax rate. (3) EBIT is $4 million. (4) The unlevered cost of equity is 12%. a. What value would MM now estimate for each firm? (Hint: Use Proposition 1.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places. Company U: $ Company L: $ million million b. What is rs for Firm U? Round your answer to one decimal place. % What is rs for Firm L? Do not round intermediate calculations. Round your answer to one decimal place. % c. Find SL, and then show that SL + DV₁ results in the same value as obtained in Part a. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round…
Merritt stone works is all - equity financed and has net sales of $217,800, taxable income of $32,600 a return on assets of 11.5percent, a tax rate of 21 percent and rotal debt of $63, 700. What are the value for the three components of the DuPont Identity?
Sorenson Co. is considering the following alternative plans for financing the company: Issue 10% bonds (at face) Issue $10 par common stock - $450,000 Plan 1 Plan 2 Issue 10$ par common stock - 300,000 450,000 150,000 Income tax is estimated of 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $114,000. Round your answers 2 Decimal places.
Three different plans for financing an $18,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income: Please see the attachment for details: Instructions1. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $2,100,000.2. Determine the earnings per share of common stock for each plan, assuming that the income before bond interest and income tax is $1,050,000.3. Discuss the advantages and disadvantages of each plan.
1

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