1)
Introduction: The debt-to-equity (D/E) ratio measures a company's reliance on debt by comparing its total liabilities to its shareholder equity. A larger D/E ratio denotes greater risk, whereas a particularly low one can signify that a company is not utilizing debt funding for expansion.
(a) Debt to equity ratio
(b) Debt to equity ratio after borrowing $500,000
2)
Introduction: The debt-to-equity (D/E) ratio measures a company's reliance on debt by comparing its total liabilities to its shareholder equity. A larger D/E ratio denotes greater risk, whereas a particularly low one can signify that a company is not utilizing debt funding for expansion.
Financial structure becomes less risky or riskier after borrowing.
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 10 Solutions
FINANCIAL & MANAGERIAL ACCOUNTING (ACCES
- Ma3. Assume that Nike decides to build a new warehouse complex at significant cost, financed with additional project-specific long-term debt. Describe how this project and financing will impact Nike’s financial statements. In your response, focus on the impact on the ratios gross margin, profit margin, ROA, current ratio, and debt-to-equity Second, assume that management is wondering whether to capitalize the interest associated with the warehouse project’s financing. Describe how the financial statements will be impacted by the choice to capitalize interest or not. Also describe managements’ incentives to capitalize interest (or not to capitalize).arrow_forwardNet Present Value Method, Present Value Index, and Analysis First United Bank Inc. is evaluating three capital investment projects using the net present value method. Relevant data related to the projects are summarized as follows: BranchOfficeExpansion ComputerSystemUpgrade ATMKioskExpansion Amount to be invested $863,421 $519,486 $311,214 Annual net cash flows: Year 1 358,000 243,000 165,000 Year 2 333,000 219,000 114,000 Year 3 304,000 194,000 83,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 6%,…arrow_forwardOwearrow_forward
- Find the Weighted Average Cost of Capital of K Ltd. For the new project.arrow_forwardABC Enterprise would like to evaluate/analyze an investment proposal. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the period 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.EXCEL COMPUTATION AND FORMULAarrow_forwardANSWER ALL THE FOLLOWING QUESTIONS AND GIVE THE COMPLETE SOLUTIONS ON HOW YOU COME UP WITH THAT ANSWER.arrow_forward
- B. Mencias Corp. is evaluating its financing requirements for the coming year, 2023. The CFO predicts that the firm's operating expenses, current assets, net fixed assets, and current liabilities will remain at their current proportion of sales. Last year (2022) Mencias Corp. had $12 million in sales with net income of $1.5 million. The firm anticipates that next year's sales will reach $17 million with net income rising to $2.125 million. Given its present high rate of growth, the firm retains all of its earnings to help defray the cost of new investments. The firm's balance sheet for the year just ended is as follows: Balance Sheet 2022 % of Sales Current assets $3,000,000 25% Net fixed assets $6,000,000 50% Total Assets $9,000,000 Liabilities and Owners' Equity Accounts payable $3,000,000 25% $2,000,000 ΝΑ Long-term debt Total liabilities $5,000,000 Common stock $1,000,000 Paid-in capital $1,500,000 Retained earnings. $1,500,000 Common equity $4,000,000 Total $9,000,000 NA NAarrow_forwardYou are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX Depreciation Increase in NWC Year-end net debt $80,000 O $201.765 O $185,617 O $193,822 0 O$222,872 Cost of net debt-8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0, using the APV method. O $213,918 1 $127,000 $60,000 $72,000 $50,000 $100,000 2 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138,500 $10,000 $84,000 $30,000 $140,000arrow_forwardABC Enterprise would like to evaluate/analyze a potential investment.. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.arrow_forward
- Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: MaintenanceEquipment RampFacilities ComputerNetwork Amount to be invested $614,361 $418,741 $186,316 Annual net cash flows: Year 1 318,000 229,000 134,000 Year 2 296,000 206,000 92,000 Year 3 270,000 183,000 67,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Required: 1. Assuming that the desired rate of return is 20%, prepare a net present value analysis for each proposal. Use…arrow_forwardThe Emu Manufacturing Company is considering five independent investment opportunities. The required investment outlays and expected internal rates of return (IRR) for these investments are shown below. The firm's cost of capital is 14% and its target optimal capital structure is a debt ratio of 30%. Internally generated funds totalling $900,000 are available for all investment opportunities. (i) Based on the IRR method, which investment(s) should be accepted? (ii) If the company were to undertake all acceptable investments, what amount should be paid out in dividends according to the residual dividend policy? (iii) What would be the amount of external finance required if the company were to undertake all acceptable investments?arrow_forwardSubject: accountingarrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337902663/9781337902663_smallCoverImage.jpg)