Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 28, Problem 8PS
Summary Introduction
To compute: The ratio of debt to total long-term capital.
Summary Introduction
To compute: The
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A firm has a long-term debt–equity ratio of 0.50. Shareholders’ equity is $2.0 million. Current assets are $320,000, and total assets are $3.2 million. If the current ratio is 1.6, what is the ratio of debt to total long-term capital?
consider a company with ROE of 14.5% and a profit margin of 6.5%. if the total asset turnover is 1.8 what is the firm's debt equity ratio
You have the following information on a company on which to base your calculations and discussion:
Cost of equity capital (rE) = 18.55%
Cost of debt (rD) = 7.85%
Expected market premium (rM –rF) = 8.35%
Risk-free rate (rF) = 5.95%
Inflation = 0%
Corporate tax rate (TC) = 35%
Current long-term and target debt-equity ratio (D:E) = 2:5
a. What are the equity beta (bE) and debt beta (bD) of the firm described above?[Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.]
b. What is the weighted-average cost of capital (WACC) for this firm at the current debt-equity ratio?
c. What would the company’s cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)
Chapter 28 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 28 - Prob. 1PSCh. 28 - Financial ratios Table 28.10 gives abbreviated...Ch. 28 - Performance measures Look again at Table 28.10. At...Ch. 28 - Prob. 5PSCh. 28 - Financial ratios True or false? a. A companys...Ch. 28 - Book rates of return Keller Cosmetics maintains an...Ch. 28 - Prob. 8PSCh. 28 - Prob. 9PSCh. 28 - Prob. 10PSCh. 28 - Prob. 11PS
Ch. 28 - Prob. 12PSCh. 28 - Prob. 13PSCh. 28 - Prob. 14PSCh. 28 - Performance measures Describe some alternative...Ch. 28 - Prob. 16PSCh. 28 - Prob. 17PSCh. 28 - Prob. 18PSCh. 28 - Financial ratios Sara Togas sells all its output...Ch. 28 - Prob. 20PSCh. 28 - Prob. 21PSCh. 28 - Prob. 22PSCh. 28 - Prob. 23PSCh. 28 - Prob. 25PSCh. 28 - Prob. 26PSCh. 28 - Prob. 27PS
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- A firm has a return on assets of 7.8 percent and a cost of equity of 11.9 percent. What is the pretax cost of debt if the debt–equity ratio is .72? Ignore taxes.arrow_forwardA firm has a debt total asset ratio of 74 percent and a return on total assets of 13 percent. What is the return on equity?arrow_forwardAssuming total invested capital = total assets, which of the following would have the highest equity multiplier? Enter question A. Company A with a debt to capital ratio of 80% B. Company B with a debt to capital ratio of 25% C. Company C with a debt to capital ratio of 60% D. Company D with a debt to capital ratio of 10%arrow_forward
- Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation. a. Butters Corporation has a profit margin of 5 percent and its return on assets (investment) is 22.5 percent. What is its assets turnover? (Round your answer to 2 decimal places.) b. If the Butters Corporation has a debt-to-total-assets ratio of 55.00 percent, what would the firm's return on equity be? (Input your answer as a percent rounded to 2 decimal places.) c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 50.00 percent? (Input your answer as a percent rounded to 2 decimal places.)arrow_forwardUsing the DuPont method, evaluate the effects of the following relationships for the Butters Corporation. A.Butters Corporation has a profit margin of 5.5 percent and its return on assets (investment) is 8.75 percent. What is its assets turnover? Round your answer to 2 decimal places. ______ times B.If the Butters Corporation has a debt-to-total-assets ratio of 65.00 percent, what would the firm’s return on equity be? Note: Input your answer as a percent rounded to 2 decimal places. C.What would happen to return on equity if the debt-to-total-assets ratio decreased to 60.00 percent? Input your answer as a percent rounded to 2 decimal places.arrow_forwardCalculatearrow_forward
- a company debt/ total assesses ratio of 25% and b company 20% with return on total assets of 10% and 7% respectively, which firm has a greater return on equity?? could find it for me?arrow_forwardif A firm's current balance sheet is as follows: Assets $100 Debt $10 Equity $90 a. what is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information? Debt/assets after-tax cost of Debt cost of equity cost of capital 0% 8% 12% ? 10 8 12 ? 20 8 12 ? 30 8 13 ? 40 9 14 ? 50 10…arrow_forwardGates Appliances has a return-on-assets (investment) ratio of 20 percent. a. If the debt-to-total-assets ratio is 25 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decima) places.) b. If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.)arrow_forward
- Calculate ‘Total Assets to Debt ratio’ from the following information : Equity Share Capital 4,00,000 Long Term Borrowings 1,80,000 Surplus i.e. Balance in statement of Profit and Loss 1,00,000 General Reserve 70,000 Current Liabilities 30,000 Long Term Provisions 1,20,000arrow_forwardSuppose your firm has a market value of equity is $500 million and a market value of debt is $475 million. What are the capital structure weights (i.e., weight of equity and weight of debt)? Group of answer choices A) weight of equity is 51.28%, , weight of debt is 48.72% B) weight of equity is 48.72%, , weight of debt is 51.28% C) weight of equity is 47.62%, , weight of debt is 52.38%arrow_forwardbased on the ratios what can you say about the company's liquidity? Is it liquid enough to convert its asset in to cash immediately or within one year?arrow_forward
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