start and has the following

semiannual bond
September 20, 2019
financial analyst with the mythical High Technology
September 20, 2019

start and has the following

The Effect of Leverage on Firm Earnings
A firm needs $100 to start and has the following expectations:
Sales$200
Expenses$185
Tax rate33% of earnings
a. What are earnings if the firm owners invest the $100 thus utilizing no financial leverage? Tax and net earnings values should be rounded to 2 decimal places.
b. If the firm borrows (utilizes financial leverage) $40 of the $100 at an interest rate of 10%, what are the firm’s net earnings? Tax and net earnings values should be rounded to 2 decimal places.
c. What is the return on equity when financial leverage is and is not utilized? Why do the returns differ? ROE results should be shown with 2 decimal places.
d. If expenses increase to $194, what will be the new return on equity values for each scenario? ROE results should be shown with 2 decimal places.
e. Did the returns decline more when financial leverage was or was not utilized?
f. How does the use of financial leverage effect a firm’s earnings?  When is using financial leverage beneficial?  When is it disadvantageous?

 

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start and has the following was first posted on September 20, 2019 at 8:22 pm.
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start and has the following was first posted on September 20, 2019 at 8:24 pm.
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