Degree of financial leverage

Assignment Help Business Management
Reference no: EM132233469

1.) A firm has the following information for the last two years. Calculate its degree of financial leverage.

This year Last year

Sales $1,500,000 $1,300,000

Operating costs $900,000 $800,000

Net income $150,000 $120,000

Number of shares outstanding 50,000 50,000

2.) Allegra Inc. has one million shares outstanding. The company is considering the issue of debt of $15 million. The interest rate on this new debt issue will be 8%, and the number of shares after the debt issue will be reduced to 500,000. Given a corporate tax rate of 40%, what is the EBIT that will cause the firm's earnings per share to be indifferent between issuing and not issuing debt?

3.) Mrs. Abecrombus has $2,000 to invest. There are only two possible investments: a levered firm with a D/E ratio of 1 and a share price of $20, and a risk-free asset with a return of 10%. If Mrs. Abecrombus prefers a D/E ratio of 2, how can she use homemade leverage to achieve her goal?

Select one:

a. borrow $2,000 at the risk-free rate and buy 200 shares

b. lend $2,000 at the risk-free rate and sell 100 shares

c. lend $1,000 at the risk-free rate and sell 50 shares

d. borrow $1,500 at the risk-free rate and buy 175 shares

e. borrow $1,000 at the risk-free rate and buy 150 shares

4.) Async Inc. and Sync Corp. both have the same EBIT of $3 million and tax rate of 30%. Async is all-equity financed with a cost of capital of 12%, whereas Sync has debt of $7.5 million. What is Sync's firm value using the M&M Proposition?

5.) You are a business analyst with a big investment bank, and you are evaluating the equity risk, business risk, and financial risk of Abilon's Inc. You went online and found that the industry consensus on Abilon's equity risk is 1.5. You also know that the company's debt-equity ratio is 2. What is Abilon's estimated business and financial risk based on the model: βE = β A(1 + D/E)?

Reference no: EM132233469

Questions Cloud

Find the dividend growth rate : Find the dividend growth rate. Round intermediate steps and your final answer to four decimals. Enter your answer in decimal format (ex: .XXXX).
Describe three notable actions that the cio should engage : Speculate on the role of the CIO in a specific industry (i.e., manufacturing, insurance, higher education, government, and distribution) when implementing green
Behavior than needs to be rewarded but not promoted : Consider this statement from a senior leader: “That is a behavior than needs to be rewarded but not promoted.”
What is the current price of lash wink stock : What is the current price of Lash Wink's stock? Assume the required rate of return is 10 percent.
Degree of financial leverage : 1.) A firm has the following information for the last two years. Calculate its degree of financial leverage.
What is the retailer effective cost of trade credit : What is the retailer's effective cost of trade credit? Assume 365 days in year for your calculations.
Compare the different types of project reviews : Review the types of project reviews in Chapter 19 of the Lane text on page 189. Compare and contrast the different types of project reviews.
If there is a cash surplus in one or more months : If there is a cash surplus in one or more months, what could a nonprofit organization do with the surplus
Identify additional attributes of a software project : Identify additional attributes of a software project that may be important to measure and control. Describe why they are important and how these attributes.

Reviews

Write a Review

Business Management Questions & Answers

  Caselet on michael porter’s value chain management

The assignment in management is a two part assignment dealing 1.Theory of function of management. 2. Operations and Controlling.

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. An analysis into the launch of Mountain Man Light over the present Mountain Man Lager.

  Analysis of the case using the doing ethics technique

Analysis of the case using the Doing Ethics Technique (DET). Analysis of the ethical issue(s) from the perspective of an ICT professional, using the ACS Code of  Conduct and properly relating clauses from the ACS Code of Conduct to the ethical issue.

  Affiliations and partnerships

Affiliations and partnerships are frequently used to reach a larger local audience? Which options stand to avail for the Hotel manager and what problems do these pose.

  Innovation-friendly regulations

What influence (if any) can organizations exercise to encourage ‘innovation-friendly' regulations?

  Effect of regional and corporate cultural issues

Present your findings as a group powerpoint with an audio file. In addition individually write up your own conclusions as to the effects of regional cultural issues on the corporate organisational culture of this multinational company as it conducts ..

  Structure of business plan

This assignment shows a structure of business plan. The task is to write a business plane about a Diet Shop.

  Identify the purposes of different types of organisations

Identify the purposes of different types of organisations.

  Entrepreneur case study for analysis

Entrepreneur Case Study for Analysis. Analyze Robin Wolaner's suitability to be an entrepreneur

  Forecasting and business analysis

This problem requires you to apply your cross-sectional analysis skills to a real cross-sectional data set with the goal of answering a specific research question.

  Educational instructional leadership

Prepare a major handout on the key principles of instructional leadership

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd