X Corporation has total assets of P100 million. Earnings before interest and taxes were P20 million...

 

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X Corporation has total assets of P100 million. Earnings before interest and taxes were P20 million and the tax rate was 35%. Given are the following leverage ratios and corresponding interest rates. Leverage (Debt/ Total Assets) 12345 1. 0% 2. 10 3. 30 4. 5. 50 60 Interest Rate on Debt 16% 16 18 21 Calculate Litton's rate of return on equity and WACC for each amount of debt. What is the optimal capital structure? If you were the finance manager, which capital structure would you choose? Justify. PLEASE USE BELOW FORMAT FOR THE ANSWER I. POINT OF VIEW II. SYNOPSIS III. ANALYSIS OF RELEVANT FACTS IV. PROBLEM ANALYSIS V. FORMULATION VI. EVALUATION OF ALTERNATIVES VII. DECISION/RECOMMENDATION VIII. CONTINGENCY PLAN X Corporation has total assets of P100 million. Earnings before interest and taxes were P20 million and the tax rate was 35%. Given are the following leverage ratios and corresponding interest rates. Leverage (Debt/ Total Assets) 12345 1. 0% 2. 10 3. 30 4. 5. 50 60 Interest Rate on Debt 16% 16 18 21 Calculate Litton's rate of return on equity and WACC for each amount of debt. What is the optimal capital structure? If you were the finance manager, which capital structure would you choose? Justify. PLEASE USE BELOW FORMAT FOR THE ANSWER I. POINT OF VIEW II. SYNOPSIS III. ANALYSIS OF RELEVANT FACTS IV. PROBLEM ANALYSIS V. FORMULATION VI. EVALUATION OF ALTERNATIVES VII. DECISION/RECOMMENDATION VIII. CONTINGENCY PLAN

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I POINT OF VIEW As the finance manager of X Corporation I am tasked with determining the optimal cap... View the full answer