Edgemont Repairs began operations on January 1, 2013. The 2013, 2014, and 2015 financial statements follow:

On January 1, 2015, the company expanded operations by taking out a $40,000 long-term loan at a 10 percent annual interest rate.

a. Compute return on equity, return on assets, common equity leverage, capital structure leverage, profit margin, and asset turnover.
b. On January 1, 2015, the company’s common stock was selling for $20 per share. Assume that Edgemont issued 2,000 shares of stock, instead of borrowing the $40,000, to raise the cash needed to pay for the January 1 expansion. Recompute the ratios in (a) for 2015. Ignore any tax effects.
c. Should the company have issued the equity instead of borrowing the funds?Explain.

  • CreatedAugust 19, 2014
  • Files Included
Post your question