A firm has return on assets (ROA) of 12% and return on equity (ROE) of 9%. The firm has a cost of capital of 8% and a capital base of Kshs.10.35 million. The corporate tax rate is 30%, the prevailing market interest rate is 6% and the economy is facing inflation of 6.1%. 

(i). Calculate the firm’s debt-to-equity ratio. 

(ii). What would have been the firm’s return on equity (ROE) if the firm was not financed by debt? What is the real return on equity in this case? 

(ii). What is the firm’s economic value added?

Answer rating: 100% (QA)

i DebttoEquity Ratio DebttoEquity Ratio Total Debt Total Equity Total Debt Total Assets Total ... View the full answer