Explain the circumstances under debt financing

Reference no: EM131831206

Question: 1. Explain the circumstances under which debt financing will increase the return on common stockholders' equity.

2. Under what circumstances will the return on assets and the return on common stockholders' equity be equal?

3. Sauer Corp. has a return on assets of 12%. It plans to issue bonds at 8% and use the cash to repurchase stock. What effect will this have on its debt to assets ratio and on its return on common stockholders' equity?

Reference no: EM131831206

Questions Cloud

Calculate return on common stockholders equity : On January 1, 2017, Vahsholtz Corporation purchased 5,000 shares of treasury stock. Other information regarding Vahsholtz Corporation is provided as follows.

Explain the differences to the directors : The board of directors is considering a stock split or a stock dividend. They understand that total stockholders' equity will remain the same.

What is the purpose of a retained earnings restriction : What was the total cost of Apple's treasury stock at September 27, 2014? What was the amount of the 2014 cash dividend?

What is the formula for the payout ratio : Thom Inc.'s common stock has a par value of $1 and a current market price of $15. Explain why these amounts are different.

Explain the circumstances under debt financing : Explain the circumstances under which debt financing will increase the return on common stockholders' equity.

Disadvantages of the corporate form of business organization : Hana Ascot is planning to start a business. Identify for Hana the advantages and disadvantages of the corporate form of business organization.

Prepare entries on appropriate dates of the cash dividend : Basse Corporation has 7,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December 1.

Define the components of stockholders equity : The stockholders' equity section of Mabry Corporation's balance sheet consists of common stock ($8 par) $1,000,000 and retained earnings $300,000.

Discuss about the stockholders equity section : Sudz Corporation has these accounts at December 31: Common Stock, $10 par, 5,000 shares issued, $50,000; Paid-in Capital in Excess of Par Value $22,000.

User Account

All Pages