Wilson Corporation has a return on equity of 27% and JensenCorporation has a return on equity of 8% Both companies are inthe same industry, have similar sales, long term debt and havestock buyback programs in place. All else being equal, which ofthe following is true?A Wilson has acquired Much More stock than JensenB Jensen has acquired much more stock than WilsonC Jensen has lower operating expenses than WilsonD Wilson has higher operating expenses than Jensen

ROE = net income/equity Now when net income is same for both companies and ROE is different it…

Answered: Wilson Corporation has a return on…

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

See similar textbooks

Similar questions

Data for Barry Computer Co. and its industry averages follow. The firm’s debt is priced at par, so the market value of its debt equals its book value. Since dol-lars are in thousands, number of shares are shown in thousands too. a. Calculate the indicated ratios for Barry.b. Construct the DuPont equation for both Barry and the industry.c. Outline Barry’s strengths and weaknesses as revealed by your analysis.d. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, andcommon equity during 2018. How would that information affect the validity of yourratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios ifaverages are not used. No calculations are needed.)
Which would increase a firm's return on equity? A. Issuance of 12% bonds and investing the proceeds to earn more than 12%. B. Increasing the size of cash dividends to shareholders. C. Increase in the firm's price earnings ratio D. Increase in market price of the firm's ordinary share E. none of the above
To illustrate the effects of financial leverage for PizzaPalace’s management, consider two hypothetical firms: Firm U (which uses no debt financing) and Firm L (which uses $4,000 of 8% interest rate debt). Both firms have $20,000 in net operating capital, a 25% tax rate, and an expected EBIT of $2,400. (1) Construct partial income statements, which start with EBIT, for the two firms. (2) Calculate NOPAT, ROIC, and ROE for both firms. (3) What does this example illustrate about the impact of financial leverage on ROE? (4) Why did leverage increase ROE in this example?
Corporate Finance Company A and Company B’s revenues and variable expenses (e.g. COGS) are identical, butA’s fixed expenses (e.g. SG&A) are smaller than B’s (see table below). Assuming the size of theirrevenues are 100% correlated with the strength of the economy, would A’s equity Beta be smaller,the same, or larger than B’s equity beta? Explain why. Strength of economy: Weak Economy Strong EconomyCompany A B A BRevenues 150 150 180 180Variable Expenses 20 20 30 30Fixed Expenses 20 100 20 100EBT 110 30 130 50
Consider two firms – Alpha Co. and Omega Co. – that operate in the manufacturing of mountain bikes and have the same degree of operating leverage. Alpha Co. and Omega Co. have, respectively, no debt and 50 percent debt in their capital structure. Which of the following statements is most accurate? Compared to the Alpha Co., the Omega Co. has: a. the same sensitivity of net income to changes in operating income. b. a lower sensitivity of net income to changes in unit sales. c. the same sensitivity of operating income to changes in unit sales.
I need help with question is solutions
K1
VanMannen Foundations, Inc. (VF)VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below. EBIT = $80,000 Growth = 0% Orig cost of equity, rs = 10.0% No. of shares = 10,000 Price per share = $60.00 Tax rate = 25% Refer to the data for VanMannen Foundations, Inc. (VF). Now the company is considering using some debt, moving to the market value capital structure indicated below. The money raised would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below. If this plan were carried out, what would be VF's new WACC and its new value of operations? New interest rate = rd = 6.00% New cost of equity = rs = 10.75% New Debt/Value = wd = 20% New Equity/Value = ws = 80% Whic one is correct? WACC Value a. 10.10%…
Compare the following two companies. California Corp • Net income margin = 10% • Asset turnover = 3.00 • Financial leverage = 2.00 Indiana Corp • Net income margin = 40% • Asset turnover = 1.00 !3! • Financial leverage = 0.50 Which of the following statements are true? California Corp has relied on equitý to finance its assets more than Indiana Corp has California Corp has a lower return on equity than Indiana Corp OCalifornia Corp has a higher return on equity than Indiana Corp California Corp generates more sales for every dollar of assets than does Indiana Corp
In a Modigliani and Miller world with no taxes, a 100% equity financed company has generated £1m cash flows this year. Consider three alternative policies: 1) pay £1m to shareholders as dividends, 2) buy back £1m worth of shares, 3) retain all cash flows. Determine which of the following statements is correct. The company's value is higher under policy 1 The company's value is higher under policy 2 Shareholders are indifferent between all three policies Shareholders are indifferent between policy 1 and policy 2, but prefer both policies to policy 3

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS