Lets assume that each company has $100 million in assets. Company NL finances these assets completely with
Question:
Let’s assume that each company has $100 million in assets.
Company NL finances these assets completely with equity.
Company L finances its assets with 25% debt and 75% equity,
while Company LL finances its assets with 75% debt and 25% equity.
Let’s further assume that the companies have identical operating earnings, $10 million, and that any debt has an interest rate of 5%.
- Calculate : - Debt-equity and Debt-to-assets
- Net income
- Interest on debt
- Return on equity
- Return on assets
** Assuming that all three companies pay taxes at a rate of 30% on taxable income
** Calculate :
- Return on equity
- Return on assets
- Net income
- Taxes at 30%
- Taxable income
- Interest on debt
Fundamentals of Financial Accounting
ISBN: 978-0078025914
5th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby