Purchase Solution

Return on equity

Not what you're looking for?

Ask Custom Question

Firms HD and LD are identical except for their level of debt and the interest rates they pay on debt--HD has more debt and pays a higher interest rate on that debt. Based on the data given below, what is the difference between the two firms' ROEs? Applicable to Both Firms Firm HD's Data Firm LD's Data Assets $200 Debt ratio 50% Debt ratio 30% EBIT $40 Interest rate 12% Interest rate 10% Tax rate 35%

A. 2.18%
B. 2.29%
C. 2.41%
D. 2.54%

Purchase this Solution
Solution Summary

The solution contains the computation of Return on equity for two firms with different level of leverage.

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

View More Free Quizzes
Related BrainMass Solutions

  • Capital Structure and Leverage for a Locomotive Corporation

    Expected return on the equity of an otherwise identical all-equity firm = return on assets = 14.29% since there is no debt, Expected return on assets = Proportion of equity x Return on equity + Proportion of debt x Return on debt

  • Return on equity

    ) = Return on assets * Equity multiplier Where Net income / Total assets = Return on assets Total assets / Total equity = Equity multiplier Return on equity = 8%*1.4 = 11.2% Thank you Solution shows calculation of Return on equity.

  • Definition of Return on Equity

    Return on Equity is calculated by dividing $ 60,000 by $ 300,000 (average shareholders equity which is $ 315,000 + $ 285,000 / 2). This gives us a Return on Equity of 20%.

  • Return on Common Equity vs Total Assets

    142419 Return on Common Equity vs Total Assets Would you anticipate that a firm's Return on Common Equity would be smaller or larger than that same firm's Return on Total Assets?

  • Calculate Afton's return on assets and return on equity

    assets and return on equity.

  • Lily Cosmetics

    = 1.5 Equity Equity = Assets/1.5 = 125/1.5 = 83.33 Return on Equity = 25/83.33 = 30% The solution explains the calculation of return on assets and debt/equity ratio for Lily Cosmetics

  • Return on Equity Using Du Pont Analysis

    Return on equity =( Net Income /Sales) x (Sales / Assets ) x (Assets / Equity) Or Return on equity =Profit margin x Total asset turnover x Leverage Or Return on equity =5.5% x 2 x 2.2= 0.242 or 24.2% Answer: Return on equity=

  • Difference in return on equity for two companies

    Return on Equity = Net Income/Total Equity Barden has a Return on Equity of 11.1%. The Total Equity of Barden=Net Income/Return on Equity = 1/0.111 = $9 million. On the liabilities side, Barden has $1 million in debt and $9 million in equity.

  • Thomas Lane Company: calculate return on equity and return on equity ratio

    = 0.12 The expert calculate the return on equity and return on equity ratios.

  • Global Financial Management

    - Return on Equity vs.

View More Related Solutions