viii. Blair Company has $5 million in total assets. The company's assets are financed with $1...

 

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viii. Blair Company has $5 million in total assets. The company's assets are financed with $1 million of debt and $4 million of common equity. The company's income statement is summarized below. $1,000,000 $ 900,000 Operating income (EBIT) Interest 100.000 Eamings before taxes (EBT) Taxes (40%) Net income The company wants to increase its assets by $1 million, and it plans to finance this increase by issuing $1 million in new debt. This action will double the company's interest expense but its operating income will remain at 20 percent of its total assets, and its average tax rate will remain at 40 percent. If the company takes this action, which of the following will occur. 360,000 $ 540.000 a. The company's net income will increase. b. The company's return on assets will fall. c. The company's return on equity will remain the same. d. Statements a and b are correct e. All of the statements above are correct. Solo Company has been depreciating its fixed assets over 15 years. It is now clear that these assets will only last a total of 10 years. Solo's accountants have encouraged the firm to revise its annual depreciation to reflect this new information. Which of the following would occur as a result of this change? a. b. C d. Statements a and b are correct. e. The company's earnings per share would decrease. The company's cash position would increase. The company's EBIT would increase All of the statements above are correct. viii. Blair Company has $5 million in total assets. The company's assets are financed with $1 million of debt and $4 million of common equity. The company's income statement is summarized below. $1,000,000 $ 900,000 Operating income (EBIT) Interest 100.000 Eamings before taxes (EBT) Taxes (40%) Net income The company wants to increase its assets by $1 million, and it plans to finance this increase by issuing $1 million in new debt. This action will double the company's interest expense but its operating income will remain at 20 percent of its total assets, and its average tax rate will remain at 40 percent. If the company takes this action, which of the following will occur. 360,000 $ 540.000 a. The company's net income will increase. b. The company's return on assets will fall. c. The company's return on equity will remain the same. d. Statements a and b are correct e. All of the statements above are correct. Solo Company has been depreciating its fixed assets over 15 years. It is now clear that these assets will only last a total of 10 years. Solo's accountants have encouraged the firm to revise its annual depreciation to reflect this new information. Which of the following would occur as a result of this change? a. b. C d. Statements a and b are correct. e. The company's earnings per share would decrease. The company's cash position would increase. The company's EBIT would increase All of the statements above are correct.

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Question Answer D is correct statements A B are correct 2 Answer is ... View the full answer