Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $10 million in invested capital, has $1.5 million of EBIT, and is in the 25% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 55% and pays 11% interest on its debt, whereas LL has a 30% debt-to-capital ratio and pays only 10% interest on its debt. Neither firm uses preferred stock in its capital structure. Calculate the return on invested capital (ROIC) for each firm.
Answers (1)
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $10 million in ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
A college has found that some of its graduating students accept offers from Amazon that pay less than offers at other companies.
Answers (1)
Suppose you have drawn a consumer's budget line for food and clothing with food on the horizontal axis and clothing on the vertical axis. If the prices of food and clothing remain the same and the consumer's income increases, A.
Answers (1)
an article in the Economist magazine noted that: "the economy's potential to supply goods and services [is] determined by such things as labour force and capital stock, as well as inflation expectations.
Answers (1)
Which of the following statements is incorrect? (A) An activity-based costing system uses more cause-and-effect relationships in tracing costs than does a traditional cost allocation system.
Answers (1)
A year ago, Phyllis Peterson purchased 100 shares of Fidelity's Contrafund for $50 each. During the year, her total return from dividends was $1 per share, and there were no capital gains distributions.
Answers (1)
New Questions in Business
Which of the following is not a valid FICO credit score? A. 575 B. 775 C. 875 D. 675
Answers (2)
Which of the following is an example of the operations concerns of a business plan? A. Working out a pricing scheme B. Contacting potential investors C. Deciding who will do what and when D. Thinking out your mission statement
Answers (1)
El Capitan Foods has a capital structure of 37% debt and 63% equity, its tax rate is 35%, and its beta (leveraged) is 1.45. Based on the Hamada equation, what would the firm's beta be if it used no debt, i. e., what is its unlevered beta, bU?1.050.
Answers (1)
The total product curve: a. will become flatter as output increases if there are diminishing returns to the variable input. b. will be downward-sloping if there are diminishing returns to the variable input. c.
Answers (1)
Using monetary theory, one can show that the price level (index) in an economy is equal to: (a) the inflation rate minus the interest rate. (b) the average change in the level of trade over the past 5 quarters. (c) the velocity of money.
Answers (1)