Company Baldwin invested $55,776,000 in plant and equipment last year. The plant investment was funded with bonds at a face value of $34,621,180 at 13.9% interest, and equity of $21,154,820. Depreciation is 15 years straight line. For this transaction alone which of the following statements are true?

Select: 5

-Since the new plant was funded with debt and equity, on the Balance sheet Retained Earnings decreased by $12,339,120, the difference between the investment $32,300,000 and the bond $19,960,880.

-

On the Balance sheet, Long Term Debt changed by $19,960,880.

-

On the Balance sheet, Plant & Equipment increased by $32,300,000.

-

Depreciation increased by $2,153,333.

-

Buying the plant had no net effect on the Cash account, because the plant was paid for by the bond plus retained earnings.

-

Cash went down by $32,300,000 when the plant was purchased.

-

Cash was pulled from retained earnings to cover the $12,339,120 difference between the plant purchase and bond issue.

-

Cash went up when the Bond was issued by $19,960,880.

Q2 This year Baldwin achieved an ROE of 23.0%. Suppose next year the profit margin (Net Income/Sales) increases. Assuming sales, assets and financial leverage remain the same next year, what effect would you expect this action to have on Baldwin's ROE?

Select: 1

	Baldwin ROE will increase.
	Baldwin ROE will decrease.
	Baldwin ROE will remain the same.

Answer rating: 100% (QA)

Answer 1 Facts of the case Investment made by Company Baldwin in plant and equipment 55776000 Above ... View the full answer