Sole owner of all-equity firm-debt is secured by the firm

Assignment Help Financial Management
Reference no: EM13803987

Suppose that you are the sole owner of an all-equity firm, the assets of which are worth $500,000. The ROA is 15% per year paid as a dividend to you. If you have the firm issue $100,000 of debt at 6%, the interest expense will be paid by the firm out of the earnings that had constituted ROA. The debt is secured by the firm, not by you. The firm pays a special dividend to you of $100,000 on the day the debt is issued. The tax rate is 34%. What will your return on equity be in the year after you go into debt?

Reference no: EM13803987

Questions Cloud

Find the price of an equivalent bond without the call option : ABC Manufacturing Company makes baseball equipment. The company decides to issue a callable bond that it expects to sell for $820 per bond. If the bond is a twenty-year semi annual bond with a 8% coupon rate and a current yield to maturity of 9%, wha..
Secure storage and retrieval process for healthcare data : Formulate a secure storage and retrieval process for healthcare data. Create a PowerPoint that highlights each of the topics below: Databases, Data dictionaries, data mining, and data warehouses and Characteristics of data quality
Semi-annual bond with a coupon rate : XYZ has just sold a callable bond. The bond is a thirty year semi-annual bond with a coupon rate of 8%. Investors, however, can call the bond starting at the end of ten years. If the yield-to-call on this bond is 10% and the call requires XYZ to pay ..
Explain how u.s. citizens are exposed to political actors : The media does have a very significant role in how U.S. citizens are exposed to political actors, policies, and processes that comprise American government.
Sole owner of all-equity firm-debt is secured by the firm : Suppose that you are the sole owner of an all-equity firm, the assets of which are worth $500,000. The ROA is 15% per year paid as a dividend to you. If you have the firm issue $100,000 of debt at 6%, the interest expense will be paid by the firm out..
Different common applications for unified messaging : Explain five different common applications for unified messaging - Describe the purpose of a Multipoint Conferencing Unit (MCU) and Describe jitter in a network.
Demand for ready-made : Over the past few decades, a sizable industry has arisen to serve the demand for ready-made and even customized compositions and term papers.
How much tax deduction you would be entitled to : Suppose that you are the sole owner of an all-equity firm, the assets of which are worth $500,000. The tax rate is 34%. If you have the firm issue $100,000 of debt at 6%, how much tax deduction you would be entitled to?

Reviews

Write a Review

Financial Management Questions & Answers

  Residual dividend theory and expectations theory

A firm declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet the stock declined by 3% the day of the announcement. Another firm declared a dividend of $2 per share, which was the same as the prior year, and its st..

  Stock according to the security market line

What is your total return on the stock? What is the dividend yield? What is the capital gains yield and what is the expected return of the stock according to the security market line?

  Corporate bond with an annual coupon

Five years ago, Highland, Inc. issued a corporate bond with an annual coupon of $7,000, paid at the rate of $3,500 every six months, and a maturity of 25 years. The par (face) value of the bond is $1,000,000. Recently, however, the company has run in..

  What is the accounting and financial break-even quantity

A project has the following estimated data: price = $66 per unit; variable costs = $43 per unit; fixed costs = $16,500; required return = 8 percent; initial investment = $25,000; life = five years. What is the accounting break-even quantity? What is ..

  Deduct the interest paid for tax purposes

On January 1, 2013, your brother's business obtained a 30-year amortized mortgage loan for $350,000 at a nominal annual rate of 7.35%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest tax ..

  Operating costs other than depreciation

Wells Water Systems recently reported $12,550 of sales, $4,250 of operating costs other than depreciation, and $1,700 of depreciation. The company had no amortization charges, it had $3,250 of outstanding bonds that carry a 6.75% interest rate, and i..

  Assume that the yield to maturity remains constant

A bond has a $1,000 par value, 10 years to maturity, and a 8% annual coupon and sells for $980. Yield to Maturity is 8.30213. Assume that the yield to maturity remains constant for the next 4 years. What will the price be 4 years from today?

  Mental stop orders vs stop orders put into trading system

What are the pros and cons associated with mental stop orders vs stop orders put into the trading system?

  Prepare financial statements in proper form for sci

Prepare financial statements in proper form for SCI, including a non-consolidated statement of financial position, a statement of comprehensive income and a statement of changes in equity.

  Present value and loan eligibility

You have saved $4,000 for a down payment on a new car. The largest monthly payment you can afford is $350. The loan will have a 10% APR based on end-of-month payments. What is the most expensive car you could afford if you finance it for 48 months?

  Consider when forecasting patient volume

Which of the following factors are managers likely to consider when forecasting patient volume?

  Clean price of the bond

You purchase a bond with an invoice price of $1,048. The bond has a coupon rate of 5.7 percent, and there are four months to the next semi-annual coupon date. What is the clean price of the bond? (Do not round intermediate calculations and round your..

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