ujita, Incorporated, has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete and correct. a-1. Recession ROE 10.40selected answer correct % a-1. Normal ROE 13.00selected answer correct % a-1. Expansion ROE 14.85 % a-2. Recession percentage change in ROE -20.02 % a-2. Expansion percentage change in ROE 14.14 % b-1. Recession ROE 14.58 % b-1. Normal ROE 19.64 % b-1. Expansion ROE 23.18 % b-2. Recession percentage change in ROE -25.97 % b-2. Expansion percentage change in ROE 18.03 % Assume the firm has a tax rate of 23 percent. c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-4. Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. c-1. Recession ROE 10.42 selected answer incorrect % c-1. Normal ROE 13.02 selected answer incorrect % c-1. Expansion ROE 14.84 selected answer incorrect % c-2. Recession percentage change in ROE -20.00 selected answer correct % c-2. Expansion percentage change in ROE 14.00 selected answer correct % c-3. Recession ROE 14.58selected answer incorrect % c-3. Normal ROE 19.64selected answer incorrect % c-3. Expansion ROE 23.18 selected answer incorrect % c-4. Recession percentage change in ROE -25.76selected answer correct % c-4. Expansion percentage change in ROE 18.03selected answer correct %

ujita, Incorporated, has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. a-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete and correct. a-1. Recession ROE 10.40selected answer correct % a-1. Normal ROE 13.00selected answer correct % a-1. Expansion ROE 14.85 % a-2. Recession percentage change in ROE -20.02 % a-2. Expansion percentage change in ROE 14.14 % b-1. Recession ROE 14.58 % b-1. Normal ROE 19.64 % b-1. Expansion ROE 23.18 % b-2. Recession percentage change in ROE -25.97 % b-2. Expansion percentage change in ROE 18.03 % Assume the firm has a tax rate of 23 percent. c-1. Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-2. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-3. Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-4. Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. c-1. Recession ROE 10.42 selected answer incorrect % c-1. Normal ROE 13.02 selected answer incorrect % c-1. Expansion ROE 14.84 selected answer incorrect % c-2. Recession percentage change in ROE -20.00 selected answer correct % c-2. Expansion percentage change in ROE 14.00 selected answer correct % c-3. Recession ROE 14.58selected answer incorrect % c-3. Normal ROE 19.64selected answer incorrect % c-3. Expansion ROE 23.18 selected answer incorrect % c-4. Recession percentage change in ROE -25.76selected answer correct % c-4. Expansion percentage change in ROE 18.03selected answer correct %

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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Hi, I completed A section, but I am getting C-1 / C-3 Wrong over and over. Please help. Attached is the answers I need help with on the image attached, and excel is what I did ..PLEASEE I NEED HELP :(

Problem 16-3 ROE and Leverage [LO1, 2]

Fujita, Incorporated, has no debt outstanding and a total market value of $422,400. Earnings before interest and taxes, EBIT, are projected to be $55,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 14 percent higher. If there is a recession, then EBIT will be 20 percent lower. The company is considering a $205,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,800 shares outstanding. Ignore taxes for questions (a) and (b). Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant.

a-1.	Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
a-2.	Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
b-1.	Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
b-2.	Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer is complete and correct.

a-1. Recession ROE	10.40selected answer correct	%
a-1. Normal ROE	13.00selected answer correct	%
a-1. Expansion ROE	14.85	%
a-2. Recession percentage change in ROE	-20.02	%
a-2. Expansion percentage change in ROE	14.14	%
b-1. Recession ROE	14.58	%
b-1. Normal ROE	19.64	%
b-1. Expansion ROE	23.18	%
b-2. Recession percentage change in ROE	-25.97	%
b-2. Expansion percentage change in ROE	18.03	%

Assume the firm has a tax rate of 23 percent.

c-1.	Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2.	Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-3.	Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-4.	Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer is complete but not entirely correct.

c-1. Recession ROE	10.42 selected answer incorrect	%
c-1. Normal ROE	13.02 selected answer incorrect	%
c-1. Expansion ROE	14.84 selected answer incorrect	%
c-2. Recession percentage change in ROE	-20.00 selected answer correct	%
c-2. Expansion percentage change in ROE	14.00 selected answer correct	%
c-3. Recession ROE	14.58selected answer incorrect	%
c-3. Normal ROE	19.64selected answer incorrect	%
c-3. Expansion ROE	23.18 selected answer incorrect	%
c-4. Recession percentage change in ROE	-25.76selected answer correct	%
c-4. Expansion percentage change in ROE	18.03selected answer correct	%

a-1. Recession ROE
a-1. Normal ROE
Answer is complete and correct.
a-1. Expansion ROE
a-2. Recession percentage change in ROE
a-2. Expansion percentage change in ROE
b-1. Recession ROE
b-1. Normal ROE
b-1. Expansion ROE
b-2. Recession percentage change in ROE
b-2. Expansion percentage change in ROE
10.40✔ %
13.00 %
14.85 %
-20.02✓ %
14.14 %
14.58✔ %
19.64 %
23.18%
-25.97✔ %
18.03 %
> Answer is complete but not entirely correct.
10.42 X %
13.02%
c-1. Recession ROE
c-1. Normal ROE
Ec-1. Expansion ROE
c-2. Recession percentage change in ROE
c-2. Expansion percentage change in ROE
c-3. Recession ROE
c-3. Normal ROE
c-3. Expansion ROE
c-4. Recession percentage change in ROE
c-4. Expansion percentage change in ROE
14.84
%
-20.00
%
14.00
%
14.58 X %
19.64 X %
23.18%
-25.76 %
18.03✔ %
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422,400
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44000
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55,000
55,000
6.25
4271
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Normal Expansion
44000 55,000 62700
12300
12300
12300
50400
31700 42,700
Ć 9.42
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422,400
217,400
-25.761124121779900%
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10.42% 13.02%
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10.42% 13.02%
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14.58% 19.64%
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14.84%
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18.032786885245900%
23.18%
14.84%
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18.032786885245900%
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$ % 95.000
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