The total resources of YVONNE Company is Php 20 million. Of this amount, 40% is in the form of current assets and the remaining 60% is in the form of fixed assets. The interest of ordinary shares to the assets of YVONNE is 40% and the remaining 60% is financed by outside creditors. Of the 60%, 40% is sourced from short-term credits and the balance is funded by long-term debts. The interest rate on the short-term debt is 8% while the long term debt has 15% interest rate. The business is expected to earn Php 5 million before interest and taxes. The applicable tax rate is 30%. Required : Compute the expected Return on Equity.
The total resources of YVONNE Company is Php 20 million. Of this amount, 40% is in the form of current assets and the remaining 60% is in the form of fixed assets. The interest of ordinary shares to the assets of YVONNE is 40% and the remaining 60% is financed by outside creditors. Of the 60%, 40% is sourced from short-term credits and the balance is funded by long-term debts. The interest rate on the short-term debt is 8% while the long term debt has 15% interest rate. The business is expected to earn Php 5 million before interest and taxes. The applicable tax rate is 30%. Required : Compute the expected Return on Equity.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Enrichment activity 8
The total resources of YVONNE Company is Php 20 million. Of this
amount, 40% is in the form of current assets and the remaining 60%
is in the form of fixed assets.
The interest of ordinary shares to the assets of YVONNE is 40%
and the remaining 60% is financed by outside creditors. Of the 60%,
40% is sourced from short-term credits and the balance is funded by
long-term debts. The interest rate on the short-term debt is 8% while
the long term debt has 15% interest rate.
The business is expected to earn Php 5 million before interest
and taxes. The applicable tax rate is 30%.
Required : Compute the expected Return on Equity.
ANSWER
Financing Plan A (conservative)
Earnings before interest and tax
Less: Interest on borrowings
Short-term (
Long-term
Earnings before tax
Less: Tax
Net Income
The Return on Equity is computed asi
Return on Equity (
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education