You are considering a stock investment in one of two firms (NoEquity, Incorporated, and NoDebt, Incorporated), both of which operate in the same industry and have identical EBITDA of $38.0 million and operating income of $29.5 million. NoEquity, Incorporated, finances its $40 million in assets with $39 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Incorporated, finances its $40 million in assets with no debt and $40 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the net income and return on assets-funders' investments-for the two firms. Note: Enter your dollar answers in millions of dollars. Round "Net income" answers to 3 decimal places and "Return on assets" answers to 2 decimal places. NoEquity Net income $ Return on asset-funders' investment 19.400 million 44.80% $ NoDebt 17.920 million %
You are considering a stock investment in one of two firms (NoEquity, Incorporated, and NoDebt, Incorporated), both of which operate in the same industry and have identical EBITDA of $38.0 million and operating income of $29.5 million. NoEquity, Incorporated, finances its $40 million in assets with $39 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. NoDebt, Incorporated, finances its $40 million in assets with no debt and $40 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the net income and return on assets-funders' investments-for the two firms. Note: Enter your dollar answers in millions of dollars. Round "Net income" answers to 3 decimal places and "Return on assets" answers to 2 decimal places. NoEquity Net income $ Return on asset-funders' investment 19.400 million 44.80% $ NoDebt 17.920 million %
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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Transcribed Image Text:You are considering a stock investment in one of two firms (NoEquity, Incorporated, and NoDebt, Incorporated), both of which operate
in the same industry and have identical EBITDA of $38.0 million and operating income of $29.5 million. NoEquity, Incorporated,
finances its $40 million in assets with $39 million in debt (on which it pays 10 percent interest annually) and $1 million in equity.
NoDebt, Incorporated, finances its $40 million in assets with no debt and $40 million in equity. Both firms pay a tax rate of 21 percent
on their taxable income.
Calculate the net income and return on assets-funders' investments-for the two firms.
Note: Enter your dollar answers in millions of dollars. Round "Net income" answers to 3 decimal places and "Return on assets"
answers to 2 decimal places.
NoEquity
NoDebt
Net income
$
Return on asset-funders' investment
19.400 million
44.80 %
$
17.920 million
%
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