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FIT Corporation"s return on net operating assets (RNOA) is 10% and its tax rate is 40%. Its net operating assets ($4 million) are financed entirely by common shareholders" equity. Management is considering its options to finance an expansion costing $2 million. It expects return on net operating assets to remain unchanged. There are two alternatives to finance the expansion:
1. Issue $1 million bonds with 12% coupon, and $1 million common stock.
2. Issue $2 million bonds with 12% coupon.
Required:
a. Determine net operating income after tax (NOPAT) and net income for each alternative.
b. Compute return on common shareholders" equity for each alternative (use ending equity).
c. Calculate the assets-to-equity ratio for each alternative.
d. Compute return on net operating assets and explain how the level of leverage interacts with it in helping determine which alternative management should pursue.
Plot the date of your answer to above inthe form contribution sales graph known as profit volume graph. and to comment on the result shown and state the break- even point.
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You are considering acquiring a firm that you believe can generate expected cash flows of $16,000 a year forever. However, you recognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 1.0. How much is the f..
The agreement also provide that if an audit adjustment is made to items reported on the schedule K-1, Bushong can make a discretionary distribution to handle the increased taxes resulting from the adjustment.
Evaluate how much of the exploration cost will be capitalized and shown as an asset on the company's balance sheet as of December 31, 2013 and repeat process using the full cost method
Elaine's original basic in the hornbeam partnership was 25,000. her share of the taxable income from the partnership since she purchase the interest has been 100,000 and Elaine has received 75000 in cash distribution from the partnership.
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