Amount of change between levels

Assignment Help Finance Basics

Reference no: EM131011168

1. Assume Connecticut Computer Company of the last two problems is earning an EBIT of $15,000. Once again, calculate the chart showing the implication of adding more leverage. Verbally rationalize the result.

2. Watson Waterbed Works Inc. has an EBIT of $2.75 million, can borrow at 15% interest, and pays combined state and federal income taxes of 40%. It currently has no debt and is capitalized by equity of $12 million. The firm has 1.5 million shares of common stock outstanding that trade at book value.

a. Calculate Watson's EAT, ROE, and EPS currently and at capital structures that have 20%, 40%, 60%, and 80% debt.

b. Compare the EPS at the different leverage levels, and the amount of change between levels as leverage increases. What happens to the effect of more debt as leverage increases from a little to a lot?

Reference no: EM131011168

Questions Cloud

Calculate the factor of safety for each stress state : Plot the following sets of stress states on a set of principal axes (an example is provided in Figure 2A of the Appendix). Calculate the factor of safety for each stress state using both the Brittle Coulomb Mohr and Modified Mohr failure theories.

Explain how gender was at work to keep society orderly : An explanation that incorporates the structural-functional theory to explain how gender was at work to keep society orderly in the social setting that you chose

Debt level will produce the desired eps : Tanenbaum's stock sells at book value. Will trading equity for debt help the firm achieve its EPS goal, and if so, what debt level will produce the desired EPS?

Current level of profitability : a. At the current level of profitability, will more debt enhance results? Why? b. Calculate the EAT, ROE, EPS, and the DFL at the current and proposed structures, and display your results in a systematic table.

Amount of change between levels : Compare the EPS at the different leverage levels, and the amount of change between levels as leverage increases. What happens to the effect of more debt as leverage increases from a little to a lot?

Find the cash coverage ratio : Hedgepeth Inc.’s net income for the most recent year was $16,885. The tax rate was 40 percent. The firm paid $3,976 in total interest expense and deducted $2,655 in depreciation expense. What was the cash coverage ratio for the year? Find the cash co..

Calculate your percentage return on the put option : Suppose you have $66,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $100 per share. You notice that a put option with a $100 strike is also available with a premium of $6.6. Calculate your per..

Required return on the riskier stock exceed required return : Stock R has a beta of 1.0, Stock S has a beta of 0.55, the expected rate of return on an average stock is 13%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exc..

Advisability of restructuring capital under these conditions : a. Reconstruct the three-column chart assuming Connecticut's EBIT remains at $8,000. b. Interpret the result in terms of stock price and the advisability of restructuring capital under these conditions. c. Could these results have been predicted ..

User Account

All Pages