Xtal assets of $5,000 and the followingthe coming year:Firm AUnleveredEconomyBadAverageGoodProbability30.00%40.00%30.00%EBIT$500.00$700.00$900.00Interest$0.00$0.00$0.00EBT$500.00$700.00$900.00Taxes (40%)-$200.00-$280.00-$360.00Net Income$300.00$420.00$540.00BEP10.00%14.00%18.00%ROA6.00%8.40%10.80%ROE6.00%8.40%10.80%Now assume that the firm plans to issue $2,000 of debt, at an interest rate of 6.4 percent,and use the proceeds to repurchase equity (you may ignore potential impacts on price andassume that the firm will then have $3,000 of equity). Given this information, determine thestandard deviation of the new ROE distribution.3.487%2.800%2.653%3.098%O 3.774%

Step 1:To find the standard deviation of the new ROE distribution after the firm issues $2,000 of…

Answered: X tal assets of $5,000 and the…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.1.1MBA

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Suppose that you are given the following data for Niles Company : Note: The data and calculations are based on a 365-day year. Cash and equivalents Fixed assets Sales Net income Current liabilities Current ratio DSO ROE $225,000 $650,000 $2,500,000 $112,500 $240,000 2.5 18.25 12.00%

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